Beware: Independent Contractors May Not Be So Independent

HOA’s Maybe Liable For The Acts of an Independent Contractor

Conventional wisdom has often assumed that when an HOA hires and independent contractor that the HOA will not be liable if the contractor is negligent and harms someone. After all, the contractor is “independent” and why should the HOA be liable when the contractor, over whom it supposedly has no control, causes such harm?

In the Affan decision, the California Court of Appeal, briefly discusses this issue in an otherwise extensive decision. Yet, the brief discussion of this narrow issue is often overlooked. It is extremely important to recognize that the principle announced in the case may be the basis for triggering huge monetary liabilities on HOA’s.

The Facts
For years, Akil and Cenan Affan, owners of units at the Portofino Cove condominium complex suffered damage as a result of sewage back-ups and flooding. They bought their unit in 1986. Their permanent residence was in Arizona, but they vacationed a few weeks a year at Portofino Cove. From 1999 to 2005, every time they visited their unit, they found sewage residue in the sink in their kitchen or tub in their bathroom. They consistently reported the problems, and after each back-up, the Association manager hired a plumber to snake the drain line. However, the plumber – an independent contractor – did not clean the pipes properly. Specifically the court, summarizing the testimony of an expert, stated: “the [plumber] used the wrong equipment to clear the main lines the [plumber] should have used a ‘scour jet’ with a motorized spinning head for mechanical boring, rather then simply trying to hydro-jet the lines…”

While one can presumably understand why the plumber contractor might be liable based on the foregoing description of its work. But why should the HOA be liable? According to the Court of Appeal decision, the Association could be liable for the acts of the plumber on the basis that the pipe repair is a “non-delegable” duty. That is, even if the HOA was not negligent, if its plumber, an independent contractor, caused damage, the Association could be “vicariously liable” for the plumber’s negligence.

It is important to note that this Court’s ruling with regard to “non delegable” duty did not go so far as to hold that the HOA was, in fact, liable. Rather, the Court remanded the case to the trial court for a new trail on this issue.

Yet the ruling is clear: yes, an Association may be liable for the acts of an independent contractor. The lesson is likewise clear: (1) do not assume that hiring any independent contractor is a sure way to limit liability; (2) having competent, licensed, insured contractors is crucial; (3) if possible, make sure the HOA is an additional insured on the contractor’s general liability policy and that the Association is contractually indemnified by the contractor; and (4) exercise reasonable due diligence in investigating and hiring the contractor.

Association Liability for Criminal Acts Causing Loss or Damage to Owner Property

In 1986, the California Supreme Court issued its ruling in Frances T. v. Village Green Owners Association. That decision – which has been the subject of critical commentary – holds that an association and its individual Board members can, in certain circumstances, be liable for bodily injuries sustained by a homeowner arising from a criminal assault by an unknown intruder.

Surprisingly, there have been few reported cases from the California appellate courts since Frances T. to provide trial courts with guidance in determining the liability of homeowners associations with regard to criminal acts of third parties. One issue, in particular, still has not been directly addressed. That is, what liability does an association face by a homeowner who claims that his/her personal property was damaged or stolen from the property?

For example, what exposure does the association face when an owner’s unit is burglarized by an unknown intruder, or when an owner’s automobile tires are slashed? Property damage claims such as these continue to plague associations. Yet the Frances T. decision and an often overlooked appellate case actually provide guidance on this issue, and support the proposition that an association (and its directors) may not be liable.

First, what happened in Frances T.? Briefly, the Court, analogizing an owner/homeowners association to a landlord/tenant relationship, held that the plaintiff unit owner, who was allegedly sexually assaulted in the association common area, could pursue a claim against the association. She would have to prove, among other things, that the association and its directors, with knowledge of criminal activity in the area, negligently ordered the plaintiff to turn off exterior lighting. The Court held that despite the Board’s right to control common area lighting, it nonetheless could be held negligent for refusing to allow plaintiff to have operating lighting outside her unit.

The Court’s reliance on the landlord/tenant analogy was based upon the argument that an association, like a landlord, controls common areas over which owners (in an association) or tenants (in apartment or commercial settings) have no control. Thus, by analogizing to landlord/tenant cases, the Court found a basis in Frances T. to allow the plaintiff to pursue her claim against the association. The alleged facts were admittedly compelling, i.e., that the association knew that the property was in a high crime area; numerous letters had been written to the Board regarding criminal activity; the Board itself acknowledged the need for better lighting, etc.

It is clear from the Frances T. decision that the Court’s rationale rested, in part, on the serious bodily injury that the plaintiff had sustained, and the apparent public policy to afford relief to a homeowner that is physically injured in this manner.

But what is the law when an owner is not physically injured, but sustains a property loss?

The answer to that may be found, not in a case involving a homeowners association, but, again, by analogizing to legal authority in a landlord/tenant context. In Royal Neckware Company, Inc. v. Century City, Inc., a tenant in a commercial building in Century City, sued the landlord for failing to provide adequate security services. The tenant alleged that as a result of inadequate security, the tenant’s store was burglarized. Over $200,000 in clothing and jewelry was stolen.

Despite the tenant’s reliance on the Frances T. case and other decisions, the Court stated that the tenant could not pursue this claim. The Court emphasized that Frances T. (and other cases relied upon by the tenant) “speak[s] to the duty of a landlord to safeguard its tenant’s safety.” The Court implicitly recognized that there is a fundamentally different public interest in protection against physical harm as opposed to bodily injury.

Thus, again, by analogizing to the Royal Neckware case (a landlord/tenant matter), which itself relied on Frances T. (a homeowners association case), one can make the very compelling argument that neither an association nor its Board can be liable pursuant to a theory of negligence when an owner’s personal property has been stolen or damaged.