In a brief opinion filed on December 3, 2021, in Atain Specialty Insurance Co. v. Dignity Housing West Inc., the Ninth Circuit Court of Appeals held that terms of coverage are limited by information contained in policy declarations and do not extend to risks not disclosed in the application.

Oakland Apartment Fire

In the early morning of Monday, March 27, 2017, a fire swept through a large, three-story transitional housing development in Oakland, California. The fire displaced nearly a hundred residents and sadly resulted in the death of four individuals. Several days before the fire, following multiple inspection requests, Oakland city fire inspectors found nearly a dozen serious violations at the development, including units lacking smoke detectors and fire extinguishers, as well as malfunctioning sprinkler systems. Unfortunately, as the Oakland city fire code gives property owners 30 days to correct violations, the issues had not been corrected by the time of the fire.

Afterward, several claimants brought suit against the owner of the building (and lessor of many of the units), Dignity Housing West, alleging a failure to take precautions necessary to save the residents’ lives in the event of a fire. A state court ultimately entered a judgment of $67 million against Dignity. At the time of the fire, Dignity had an effective general commercial liability policy through Atain Specialty Insurance Co. Atain initially provided a defense in one of the claims; however, it subsequently withdrew and filed a federal complaint seeking a declaration that the policy did not cover the housing development.

Coverage Limited to Information Disclosed in Application and Contained in Declaration

When it applied for coverage through Atain, Dignity described itself as a housing developer and listed a 200-square-foot office space as its sole premises. Additionally, when asked on the application whether Dignity conducted any “lodging operations including apartments,” Dignity omitted that it owned or maintained three apartment buildings, including the transitional housing development where the fire ultimately occurred. Citing precedent, the Ninth Circuit noted that if there is no information in the insurance policy declaration indicating coverage, “no further review of the policy is necessary.” Relying on this, the court held that “[b]ecause nothing in the Declaration supports the view that the policy applied to any of Dignity’s three undisclosed apartment buildings, the policy did not cover the [transitional housing development] building.”

The court also discussed the “reasonable expectations” in a way seldom observed in the Ninth Circuit — to support the carrier’s position. Relying on a 1970 California Supreme Court case, which held the amount of an insurance premium can suggest the “reasonable expectations” of coverage, the court noted Dignity’s “$360 yearly premium could not reasonably be expected to pay for general liability insurance for dozens of apartments in three separate buildings.” As such, the premium lent further evidence that coverage is limited to the 200-square-foot office described in the policy declaration.