$110 Million Judgment vs ELS / Failure to Maintain Lawsuits / Who is at risk

Recently, you may have seen press on a large judgment versus the biggest owner of Mobile Home Parks in the nation, Equity Lifestyle Properties.  This lawsuit was filed by a group of tenants versus park management.  They alleged, and the jury ultimately found, that the park owner had failed to maintain and upkeep services and park amenities to the point that the park tenants’ home value was substantially diminished.  The park owner denied these allegations and is appealing the judgment. There’s three key issues that park owners should know about.  First, Failure-To-Maintain (FTM) lawsuits are almost exclusively a creature of California’s legal system.  Nevada and Connecticut have recognized some similar but much more limited cause of action.  Thus, if you own or are buying a park in CA, FTM lawsuits are certainly something you should understand.  If you own or are buying a park outside of CA, FTM lawsuits are likely something you’ll never encounter.  Second, if you own or are buying a park in California, it’s important that your insurance policy include coverage for FTM lawsuits.  Only a few insurance companies that actively insure parks in CA include FTM coverage. If you own a park in CA and aren’t for sure if you have FTM, call your agent and ask.  If they don’t know, find an agent that does. Third, the ELS judgment for $110 million included over $90 million in punitive / exemplary damages.  In most jurisdictions, such damages are not insurable.  Most state laws say that because punitive damages are designed to punish  defendants, it is against public policy for the defendant to pass those costs/punishment off to an insurance company.

My bet is that the judgement will be negated, even if the verdict is upheld. ELS is a great operator and, even though I have never seen the park, there’s no way that ELS would do so lousy a job as to reduce the tenant’s home values like that. One of the allegations was that there was algae in the fountain in the front – give me a break. This case was no doubt orchestrated by a personal injury lawyer who saw an opportunity to use roughly 60 disgruntled tenants in a park of 500, probably harboring a grudge that had nothing to do with property condition. Again, I know ELS and I frankly don’t believe they could let a park go like that. There are always two sides to every story.