DEFECT LAWS-Board of Directors' Fiduciary Duties

Fiduciary Duty to Investigate Defects Timely and Pursue Claims-California Civil Code Section 1365.7:

1365.7(a)(1):  A volunteer director… shall not be personally liable…if acts or omissions were performed within the scope of association duties. 

1365.7(f)(1):  The scope of directors' duties shall include:

• Whether to conduct an investigation of the common interest development for deficiencies prior to the expiration of the applicable statute of limitations.
• Whether to (send notice under SB 800) or commence a civil action against the builder for defects in design or construction.

In the case of Smith v. Superior Court (1990), the board of directors was sued for breach of fiduciary duty and negligence for failing to timely pursue a construction defect claim against the developer.

However, the California Supreme Court later held in Lamden v. La Jolla Shores Association (1999). that a board has discretion on how to repair and maintain common areas as long at they conduct " a reasonable investigation, in good faith and with regard of the best interests of the association."

Directors and Officers Insurance Coverage:

There may no longer be coverage for board decisions made concerning the following:

• Construction defects
• Mold
• Pending or prior litigation
• Construction Defect is defined in many policies as "any alleged or actual defective, faulty or delayed construction or any other mater recognized as a construction defect."

Fiduciary Duty to Repair, Replace and Maintain- California Civil Code Section 1364(a).

Unless otherwise provided in the CC&Rs, the association, acting through its board, is responsible for repairing, replacing and maintaining the common areas.  The owner of each separate interest is responsible for repairing and maintaining the separate interest and any exclusive use common areas.  Any claims of negligent maintenance by the builder as contributing to common area property damage may greatly reduce the potential recovery by the Association.

Association Standing- California Civil Code Section 1368.3.

An association has standing to institute, defend, settle or intervene in litigation, arbitration and mediation in its own name without joining in the individual owners for claims involving:  (a) Enforcement of the governing documents; (b) Damage to the common areas; (c) Damage to a separate interest that the association is obligated to maintain or repair; (d) Damage to a separate interest that arises out of, or is integrally related to, damage to the common area.