Does a co-owner’s limited management of rental property expose them to liability for knowing of dangerous housing conditions on a co-owned property?

Facts: A rental property was owned by an owner and co-owner. The owner primarily managed the property, while the co-owner performed only limited management duties. The owner and co-owner held an insurance policy covering claims resulting from unknown dangerous housing conditions. As primary manager, the owner was aware of dangerous housing conditions on the property. A tenant of the rental property sued and was awarded money damages from the owner and co-owner for dangerous housing conditions. The insurance company paid the damages then sought to recover the cost of the damages from the owner and co-owner.

Claim: The insurance company claimed the damages were not covered under the insurance policy since both the owner and co-owner were aware of the dangerous conditions due to their mutual management of the rental property.

Counterclaim: The co-owner claimed their share of the damages was covered under the insurance policy since the co-owner had only limited involvement in the management of the rental property and therefore was not aware of the dangerous housing conditions.

Holding: A California court of appeals held the damages were not covered under the insurance policy and the insurance company was entitled to recover the cost of the damages from both the owner and co-owner since even the co-owner’s limited involvement in the management of the rental property put the co-owner on notice of the dangerous conditions. [Axis Surplus Insurance Company v. Reinoso (2012) 208 CA4th 181]

Editor’s note – The insurance company also recovered the cost of the damages from the owner since the owner, as primary manager of the rental property, was aware of the dangerous housing conditions.