Briefing Doc – 17F-H1716008-REL
Briefing: Gravelle v. Village Parc Homeowners Association
Executive Summary
This briefing synthesizes the key findings and legal determinations from an administrative case between homeowners Jerry and Patricia Gravelle and the Village Parc Homeowners Association of Havasu (HOA). The dispute centered on liability for damages within the Gravelles’ condominium unit caused by a sewer backup.
The petition, filed with the Arizona Department of Real Estate, was ultimately dismissed. The Administrative Law Judge (ALJ) concluded, and the Department Commissioner affirmed, that the HOA’s governing documents—the Covenants, Conditions, and Restrictions (CC&Rs)—unambiguously place the responsibility for insuring the interior of an individual unit on the unit owner, not the HOA.
The ruling established that the HOA’s master insurance policy, provided by Travelers, was only obligated to cover what the CC&Rs required. Arguments based on the HOA’s past payments for minor damages in other units, an erroneous initial statement by an insurance adjuster on a prior claim, and the HOA Board’s own mistaken interpretation of its duties were all found to be insufficient to override the plain written language of the governing documents. The final decision reinforces the principle that unit owners are responsible for understanding their CC&Rs and securing adequate personal insurance for their property.
I. Case Overview and Final Disposition
• Case Identification: No. 17F-H1716008-REL
• Parties:
◦ Petitioners: Jerry and Patricia Gravelle, owners of Unit 14 in the Village Parc development.
◦ Respondent: Village Parc Homeowners Assoc. of Havasu (“the Association”).
• Adjudicating Body: The case was heard in the Arizona Office of Administrative Hearings before Administrative Law Judge (ALJ) Diane Mihalsky. The final order was issued by the Commissioner of the Arizona Department of Real Estate.
• Key Dates:
◦ Hearing Date: November 10, 2016
◦ ALJ Decision: December 22, 2016
◦ Final Order: January 3, 2017
• Final Disposition: The Commissioner of the Department of Real Estate, Judy Lowe, accepted the ALJ’s recommendation and ordered that the petition be dismissed. This constituted a final administrative action, effective immediately. Parties were advised of their right to file for rehearing or appeal for judicial review.
II. The Core Dispute: Insurance for Sewer Backup Damage
On or about October 23, 2015, the Petitioners’ condominium (Unit 14), along with two other units, suffered damage from a sewer backup. The central conflict arose from determining which party was financially responsible for the repairs inside the Petitioners’ unit.
• Petitioners’ Claim: The Gravelles filed a petition on August 31, 2016, alleging the Association violated Articles 11.7.3 and 11.7.6 of the CC&Rs by failing to provide insurance coverage for the full extent of the damages. Their personal insurance policy did not cover sewer backups. They requested the Association pay $6,697.70 to reimburse them for the loss that the Association’s insurer, Travelers, declined to cover.
• Insurance Claim Outcome:
◦ The Association submitted a claim for the sewer backup damages to its insurer, Travelers.
◦ Travelers determined that its policy covered damages to the common elements associated with the unit and issued a check to the Petitioners for $338.64.
◦ Travelers concluded there was no coverage under the policy for damage to the interior of the Petitioners’ unit. This denial was based on the CC&Rs, which establish that the unit owner is responsible for the finished surfaces and personal property within their unit.
III. Analysis of Governing Documents and Legal Framework
The ALJ’s decision was grounded in a strict interpretation of the Association’s CC&Rs, its insurance contract, and the Arizona Condominium Act.
Document / Statute
Key Provisions and Implications
Village Parc CC&Rs
Unit Definition (Sec. 2.2.1): A unit is defined as the space “bounded by and contained within the interior finished surfaces of the perimeter walls, floors and ceilings.”
Insurance Responsibility (Sec. 11.7.3): The Association’s master policy is explicitly “not be required to insure the personal property within any individual Unit, which insurance shall be the responsibility and risk of the Unit Owners.”
Liability Limitation (Sec. 11.7.5): The Association is not liable to any owner “if any risk or hazard is not covered by insurance or the amount is inadequate.” It places the burden on each owner to ascertain the Association’s coverage and procure their own additional insurance.
Travelers Insurance Policy
Conditional Coverage Endorsement: The policy covers certain property (fixtures, alterations, appliances) contained within a unit, but only “if your Condominium Association Agreement requires you to insure it.” Since the CC&Rs do not require the Association to insure unit interiors, this coverage was not triggered.
Primary Insurance: The policy states it is “intended to be primary, and not to contribute with such other insurance” a unit-owner may have.
Arizona Condominium Act
Unit Definition (A.R.S. § 33-1212(1)): Reinforces the CC&Rs by defining finished surfaces—”lath, furring, wallboard… tiles, wallpaper, paint, finished flooring”—as part of the unit. All other portions of walls, floors, or ceilings are common elements.
Maintenance Responsibility (A.R.S. § 33-1247(A)): The law specifies that “the association is responsible for maintenance, repair and replacement of the common elements and each unit owner is responsible for maintenance, repair and replacement of the unit.”
IV. Petitioners’ Arguments and the ALJ’s Rejection
The Petitioners presented evidence of past practices by both the Association and Travelers, arguing these created an expectation of coverage. The ALJ systematically rejected these arguments.
• Argument 1: The Association’s Past Payments for Unit Repairs
◦ Petitioners’ Evidence: The Association had authorized payments for repairs inside other units on prior occasions:
▪ June 2011: $153.74, $75.00, and $296.11 for damage to Units 3 and 5 from a broken shower drain.
▪ January 2012: $449.45 to repair kitchen cabinets in Unit 6 damaged by a broken roof vent.
◦ ALJ’s Conclusion: The fact that the Association’s Board made “actual payments of small amounts for damages to individually owned units” does not legally amend the plain language of the CC&Rs. Notably, the Association did not submit these prior incidents to its insurer.
• Argument 2: Travelers’ Prior Actions
◦ Petitioners’ Evidence: In a 2014 claim, a Travelers adjuster initially determined that the policy did provide coverage for damage done to a unit, not just limited common elements.
◦ ALJ’s Conclusion: Travelers later stated the adjuster had erred and confirmed no claim for unit damage was ultimately paid. The ALJ found that the “adjuster’s initial error in the 2014 claim does not estop Travelers from denying the claim for damages to Petitioners’ unit” in 2015.
• Argument 3: The Association Board’s Own Interpretation
◦ Petitioners’ Evidence: At a November 2015 board meeting, where Mr. Gravelle served as secretary/treasurer, the Board itself determined that the CC&Rs did require the Association to provide insurance coverage for all damages to Unit 14.
◦ ALJ’s Conclusion: The Board’s “erroneous opinion” does not have the legal power to amend the CC&Rs or the binding terms of the Travelers insurance policy.
V. Core Legal Principles and Final Decision
The dismissal of the petition was based on several foundational legal principles.
• Primacy of Written Documents: The decision gave superior weight to the “plain language” of the CC&Rs and the insurance contract over inconsistent past practices or mistaken interpretations.
• Burden of Proof: As the filing party, the Petitioners had the burden to prove by a “preponderance of the evidence” that the Association violated the CC&Rs. The ALJ determined they failed to meet this standard.
• Clear Delineation of Responsibility: Both the CC&Rs and Arizona state law create a clear separation of financial and maintenance responsibilities: the Association is responsible for common elements, while individual owners are responsible for their units.
• Presumption of Knowledge: The decision cited the legal principle that “Everyone is presumed to know the law.” The CC&Rs put the Petitioners on constructive notice that they were responsible for insuring their individual unit against risks like a sewer backup. Their failure to procure such coverage was their own responsibility.
