HOA Responsible for Owner's Lost Rental Income?

A few months ago during the heavy rains in California, two units in our 12 unit complex were flooded when water leaked through walkways located in the common area into the ceiling of those units. The HOA insurance claim was denied by their carrier because the water damage source was considered flooding/rising water, and their insurance did not include flood insurance.

The HOA has agreed to pay for the repair costs for the units - but not for the lost rent suffered by the owners when their tenants had to move out for repairs. The owners have not yet filed a claim with their insurance companies, because (1) this is the third common area leak over the past 12 months - and they are afraid of a significant rise in premiums or cancellation of policy if they report another claim, and (2) they also don't hold flood insurance - so it's likely that their insurance companies will also deny the claim.

Is the HOA legally responsible for reimbursing the owners for lost rental income since the source of the water damage was in the common area?

Question for an attorney.

I suspect you will find one that says yes and one that says no.

Rainwater pooled on the third story common area walkways (insurance carrier defined this as flooding/rising water) and seeped down into the ceilings of the two ground floor/second story units below.

Well it depends on a few factors... However, I consider a rental agreement between owner and renter. It's NOT with the HOA. The HOA doesn't run the owner's business nor have a rental agreement with the tenant. It's a third party thing.

Loss of income would be if they owned a doctor's office and ran a practice out of their home. That may be something that falls under "loss of income". However, considering this is illegal to do in most HOA's to use your home as a business, it's most likely not on the hook.

As for flood insurance. In our state one has to be declared to be in a flood zone to get flood insurance. If your in a flood zone then it's required. Otherwise it's optional for the most part. When a downpour of rain causes flooding and goes away afterwards, it's not a flood zone. A flood zone the water retains for a long period of time.

I don't believe the HOA is on the hook for lost rental because there just is not a contract between HOA and renter. The renter should have had their own rental Insurance. Otherwise, you pay for the damage full on.

This is a quote from a California law firm:

"Many homeowners mistakenly believe that their associations are strictly liable for any damage or loss they may suffer even if the HOA was not the cause of the loss. For example, a plumbing leak damages an owner's unit does not automatically make the association liable for the damage. The standard for HOA liability is negligence (unless the governing documents establish a different standard). Accordingly, the HOA must have had a duty to maintain the particular plumbing line, the HOA breached that duty (the board knew or should have known that the line needed repair and failed to take action to repair it), and the HOA's breach of its duty caused a loss to the owner. Under those conditions, the association may be liable to the owner for the loss he/she suffered."

http://www.davis-stirling.com/Main-Index/Negligence-Defined

Did your association do something negligent to cause the water damage, or did it "just happen" due to lots of rain?

Looking at the bigger picture, does the association pay loss of use for owner residents who are displaced in the same situation? If not, then I don't see the case for paying for lost rental income.

You should challenge the Insurance Carrier's definition. It's damage from rain water, not flood water. Contact them and express this. If they do not budge, contact a lawyer or an independent adjusting company.