– By Laurie F. Masotto, Esq. (originally published April 1999)
The Consumer Product Safety Commission (CPSC) recently put the heat on Central Sprinkler by announcing the recall of Omega brand fire sprinklers. This breakthrough comes in connection with two class action lawsuits filed against Central Sprinkler for defective sprinklers that could likely fail in a fire.
I. How Do We Make a Claim for Reimbursement or Replacement Sprinklers?
Condominium associations which have the maintenance responsibility for fire sprinklers, and other associations which are responsible to maintain sprinklers in common areas (i.e. a clubhouse) should be aware of the right to file a claim prior to August 1, 1999. The claim can be made to receive either replacement sprinklers or reimbursement for replacements already made.
First, associations should determine whether they are responsible to maintain, repair and replace fire sprinklers, as indicated in the associations’ governing documents. We suggest you consult legal counsel to verify responsibility. The next step is to identify whether such sprinklers are the Omega bran The claim booklet published in connection with the recall has detailed diagrams to assist in identifying the type of sprinkler. A website has also been set up to assist anyone interested in making a claim. Associations may also wish to engage a contractor to assist in identifying the sprinkler type.
Once identified as Omega, affected associations should complete a Proof of Claim form, including taking photographs of each model type installed, and sign and return a Waiver and Release of Claims. As stated in the Notice of Proposed Settlement of Class Action, the release is only effective as to claims involving the inspection and replacement of the sprinklers, and does not release claims for property damage or personal injury or death which occur due to the failure in a fire or premature activation of such sprinkler. You may obtain a copy of the Proof of Claim form through our office, or by calling 1 (800) 927-5291.
Once a valid and timely Proof of Claim form is submitted, the applicant is eligible for replacement sprinklers, or up to $3.00 per sprinkler where the party cannot use replacement sprinklers, or has already replaced them. Central Sprinkler will be depositing funds into a trust, from which monies will be disbursed beginning September 1, 1999 through at least November, 2002. However, the Notice of Proposed Settlement of Class Action indicates that Central will not have the financial ability to cover the full cost of repair/replacement of all such sprinklers nationwide, and the actual amount paid to persons making claims will depend on the number of claims made, recovery against its own insurers and other factors.
II. Should We Wait for Replacement Sprinklers or Reimbursement Before Replacing Sprinklers?
The Claim form being distributed by Central Sprinkler recommends immediate replacement of sprinklers, in that reimbursement and replacement sprinklers and/or payments out of the trust being established for these purposes may not cover replacement in full, and may not be sent or paid to claimants for another two years or more.
In evaluating whether to take action to replace sprinklers before replacements or settlement funds are received, the Business Judgment Rule set forth in Corporations Code Section 7231 essentially requires directors to make decisions on behalf of an association in good faith. That is, what the director believes to be in the best interest of the association using reasonable care and reasonable inquiry, as a reasonably prudent person would. In addition, in the recent case of Lamden, it was held that directors must maintain the areas for which an association is responsible so as to not increase the risk of harm to individual unit owners or their property. Although this case has been accepted for review by the California Supreme Court and may not be cited by a party challenging a decision of an association, it is nevertheless instructive and should be taken into account when deciding whether prompt replacement is warranted.
In making this decision, associations should consider the following factors:
* the apparent findings by the CPSC that the sprinklers are “likely” to fail;
* that the cost of replacement (sprinkler head cost plus labor to install) may be minimal;
* notice of the recall is widespread; * there is potential for substantial property damage or personal injury due to fire;
* and associations have authority under Civil Code Section 1366 to levy “emergency” special assessments which may cover the cost to immediately replace the sprinklers.
Considering these factors, it is possible that failure to promptly replace these items could result in associations being viewed as negligent based on a failure to use reasonable care in performing its duties, in light of the minimal cost it would have taken to reduce such risk. However, we suggest you consult with legal counsel as to the ramifications and specific circumstances involving your association to determine an appropriate course of action.