A property manager in California was sued by a homeowners’ association for failing to maintain surety bonds for a construction project. The property manager’s claim against its professional liability insurers was lost because of an exclusion precluding cover for the “failure to effect or maintain any insurance or bond, or … any failure to cover certain perils or to purchase an adequate amount or type of insurance”.
The court held that the bond exclusion was broad, unambiguous and enforceable. The claims arose out of the company’s failure to ensure that surety bonds remained effective until construction was completed and that clearly fell within the exclusion.
Exclusions of this type commonly appear in policies and it is not often they get judicial attention. The case is interesting for that reason alone.