Condo Owners Liable for Common Area Mishaps : Lawsuit: Court ruling clears way for victims to sue individual owners for common area accidents.

An important, but little-known court ruling that cleared the way for accident victims to sue individual condo owners if the accident occurs in the common area of their development may affect hundreds of thousands of condo owners in California, legal experts say.

The ruling, issued by the 4th District Court of Appeal in Santa Ana late last year, allows Russell Ruoff to sue residents of the Harbor Creek Condominiums, a 152-unit condo project in Dana Point, for negligence. Ruoff’s wife, Martha, fell down a flight of stairs at Harbor Creek in 1988 and suffered catastrophic, permanent injuries. Her medical costs are expected to exceed the $1 million insurance policy held by the condo association.

The ruling “potentially has a very sweeping effect because of the way title is held to a large number of (condos) in California,” said John Paul Hanna, a Palo Alto attorney and expert in California condominium law. He is the author of “The California Condominium Handbook.”

He estimated that 10,000 condominium projects in California, and hundreds of thousands of individual owners, could be directly affected by the ruling.

The court’s decision allows individual condo owners to be sued if someone is injured in the common area--staircases, hallways, pools, clubhouses--of a condo project. Because most condo owners hold title to the airspace within their unit and also hold an undivided interest in the common area, the number of affected owners is enormous, Hanna said.

In the Ruoff case, each condo owner owns a 1/152 interest in the common area of the Dana Point project where Martha Ruoff fell backward down a flight of stairs she was climbing on Aug. 9, 1988. According to a lawsuit filed by Santa Monica attorney Dennis Mullen, Mrs. Ruoff spent 107 days in a hospital intensive care unit after the accident and another eight months at a rehabilitation institute. Since his money and insurance coverage ran out, Russell Ruoff, 72, has had to care for Martha at home, the lawsuit says.

She is permanently disabled with neurological abnormalities, cannot speak or care for herself, and will need assistance for her daily activities throughout the rest of her life, doctors have said.

Russell Ruoff, who has been appointed conservator for Martha, sued the condominium association, the general contractor, architect and developer of the project and numerous individual owners of condominiums within the project.

The individual owners, represented by attorney Henry P. Schrenker, argued that they could not be sued because of a provision in the law governing condominiums. A section of the Davis-Stirling Common Interest Development Act states that volunteer officers or directors of the association who live in the condominium development are immune from damages.

Orange County Superior Court Judge Jack K. Mandel agreed with the condo owners in an October, 1991, ruling. But Ruoff appealed that ruling last year and the appeals court recently agreed with him that the immunity section of the law is limited specifically to volunteers who serve on condo association boards and does not extend to all owners.

The ruling means that “since you’re a landowner, you’re responsible and if (a judge or jury) decides you were negligent, you’re liable,” Hanna said. And, if the insurance policy your association holds is not adequate to cover the damages, he said, “you get stuck with the damages.”

The Ruoff case has been sent back to the Orange County court for trial. No trial date has been set.

The appeals court ruling is technically only legally binding in the area covered by the 4th District--Orange, Imperial, San Diego, Inyo, Riverside and San Bernardino counties. However, unless another appellate court decides the issue differently or a similar case is decided by the California Supreme Court, trial courts throughout the state will probably follow this decision, Hanna said.

Not all condominiums are set up so that individual owners actually own a portion of the common area, Hanna said.

When condominiums first came on the market in California in the early 1960s, potential buyers were put off by the idea that they simply owned the inside of the condo unit and not the actual property around it. That is why they were often structured so that buyers owned a piece of the grounds.

“For the first 10 years, they were always easier to sell if the buyer was also going to own some dirt. Nowadays, people have gotten beyond that idea,” Hanna said.

In some condominiums, individuals own only their own units and the common area is owned by an incorporated homeowner’s association that is a separate entity. In that situation, someone injured in a stairway or pool could not sue condo owners because the individuals do not own the common area.

Steven Sokol, associate general counsel for the California Assn. of Realtors, a trade association representing 126,000 real estate professionals statewide, said the ruling is unfortunate for condo owners.

“As a practical matter, they don’t have much say (as to how common areas are built or maintained) except during an annual board meeting,” Sokol said. “The unit owners are not really the bad guys in this.”

In light of the ruling, he said, condo owners should do two things. First, they should review how their own deed is set up and whether they are potentially liable, and second, they should make sure they are adequately insured.

“In retrospect, (for the Harbor Creek owners) it would have been money well spent had they sat down with an attorney and reviewed their potential liability ahead of time,” Sokol said.

To get proper advice, he recommends having an attorney specializing in condo law look at the deed and having an insurance broker who is familiar with condominiums assess risks and recommend how much coverage to buy.

Hanna predicted that the ruling will eventually cause a flurry of legal action as condo owners and lawyers figure out ways to get around it. He said that individual owners may decide to deed their interest in common areas over to their homeowner’s associations to escape liability.

Legislatively, the law governing condominiums could be amended to provide that anyone in a condo development with a common interest is not personally liable in the event of an accident, he said.

In the future, Hanna predicted, new condo developments will probably be structured to get around the ruling. “What we’ll probably do is set them up so that individuals own an interest in a three-dimensional airspace hanging over the buildings, kind of like a Goodyear blimp, or maybe an interest in the dirt below the foundation. Everything else, from the foundation up, will be deeded to the homeowner’s association,” Hanna said.

Legal citation: Ruoff vs. Harbor Creek Community Assn., Docket No. G011799. Filed Nov. 18, 1992 (92 Daily Journal DAR 15485).