Colorado Supreme Court Addresses Limits of Liability in Owners’ Association Documents 13:35, September 1, 2017

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Colorado Supreme Court Addresses Limits of Liability in Owners’ Association Documents

On May 1, 2017, the Colorado Supreme Court issued its opinion in McShane v. Stirling Ranch Property Owners Association, Inc. The decision determined that an exculpatory clause in a homeowners association’s governing documents that limited liability for the association’s board and agents did not exculpate the association itself.

McShane purchased property located within the Stirling Ranch subdivision and proceeded to seek approval for a two-story house from the owner’s association (“Association”). The Association was governed by an executive board and controlled by a set of governing documents, including a declaration and design review guidelines (“Governing Documents”). Before an owner could begin construction of any improvement, the Governing Documents provided that (i) the construction plans needed to comply with the Governing Documents and (ii) the owner needed to secure approval from the Association’s design review board.

After the Association approved McShane’s construction plans and construction had commenced, Garfield County discovered that McShane’s two-story house exceeded height restrictions and issued a stop-work order.  The Association then revoked its approval of the original plans based on misrepresentations concerning the building height.   McShane revised his construction plans and ultimately constructed a one-story house. McShane sued the Association and its consultant architect for the costs associated with construction conversion from the multi-story to single-story design.  David McConaughy of Garfield & Hecht, P.C., obtained a dismissal of the claims against the architect prior to trial.  In addition to denying any wrongdoing on the merits, insurance defense counsel for the Association argued that

McShane’s remaining claims were barred by exculpatory provisions in the Governing Documents that provide that the Association’s executive board and design review board were not liable for any claim that arose because of the design review board’s approval of any construction plans. The exculpation clause, however, did not expressly limit liability to the Association itself.

The Colorado Supreme Court ruled that despite the Governing Documents’ exculpation of the Association’s executive board and design review board, the Governing Documents did not limit the liability of the Association itself. The Court noted that a homeowners association is a legal entity separate and distinct from its boards and agents.  The Supreme Court did not address whether the Association was actually responsible for any losses to McShane, which the Association continues to deny.

This decision should motivate associations to review their governing documents to ensure that any exculpatory clauses are properly drafted and limit the liability for the association as well as its directors, officers, and agents. Garfield & Hecht, P.C., has extensive experience representing homeowners associations in all aspects of governance and statutory compliance and can review governance documents to ensure that exculpatory language provides the broadest possible protection. If you have any questions or require assistance, please contact Ron Garfield at moc.t1573608865hcehd1573608865leifr1573608865ag@dl1573608865eifra1573608865gr1573608865 or Chris LaCroix at moc.t1573608865hcehd1573608865leifr1573608865ag@xi1573608865orcal1573608865c1573608865 (Aspen), David H. McConaughy at moc.t1573608865hcehd1573608865leifr1573608865ag@yh1573608865guano1573608865ccmd1573608865 (Glenwood), and Kursten Canada at moc.t1573608865hcehd1573608865leifr1573608865ag@ad1573608865anack1573608865 or Tracy L. Kinsella at moc.t1573608865hcehd1573608865leifr1573608865ag@al1573608865lesni1573608865kt1573608865 (Avon).