A Colorado POA's false $15.5 million assessment demand cost it its insurance entirely
A Colorado POA's false $15.5 million assessment demand cost it its insurance entirely
2026-09-10 · Colorado · Courts
A Colorado condominium owners' association circulated a $15.5 million assessment demand its own directors knew was false, and lost its liability insurance for both defense and indemnity. The Tenth Circuit decided New Hampshire Insurance Co. v. TSG Ski & Golf, LLC, No. 23-1248, on February 24, 2025, in an opinion marked for publication — so it is binding precedent. Judge Hartz wrote for a unanimous panel.1
This is the case to put in front of a board that is about to send an aggressive collection letter.
What the court held
Under Colorado law, a commercial general liability policy's knowledge-of-falsity exclusion for personal-and-advertising-injury coverage:
defeats the duty to defend even where the claims pleaded against the insureds did not require proof that the false statements were made knowingly — because the underlying complaint itself alleged the insureds knowingly published the falsehoods; and
defeats the duty to indemnify because the evidence at the underlying trial established that they knowingly published them.
The insureds' counterclaims for breach of contract and for common-law and statutory bad faith failed with the coverage, since those claims flow from the denial of coverage and must fail if coverage was properly denied.
The community and the arrangement
The Peaks is a mixed-use ski-in, ski-out condominium building in Mountain Village, Colorado — roughly 177 residential units, 14 commercial units and 26 penthouse units — operated as a hotel through a rental programme. The Peaks Owners Association manages the common elements, which the unit owners hold as tenants in common and fund through annual assessments.
From 2009 to mid-2015 one entity, Telluride Resort & Spa, LLC, owned all residential and commercial units; the penthouses were separately owned. Telluride paid through a “True-Up Process”: each year the board allocated about 80% of budgeted common-area expenses to Telluride, which owned about 80% by square footage, and 20% to the penthouse owners; the penthouse owners' collections were remitted to Telluride; Telluride paid the building's expenses as incurred; and at year end the board credited Telluride's payments against the total assessed.
What the association did
From late 2018 the association, together with TSG Ski & Golf and a board member, executed what the underlying complaint described as a three-part scheme to coerce payment of assessments they knew were not owed.
First, a “sham” audit of assessments for 2009 to mid-2015, structured so the accountant would overlook the True-Up payments and conclude Telluride had paid nothing.
Second, a further accounting firm whose scope was deliberately limited to assessments paid by direct deposit into association bank accounts — so it too would miss the True-Up payments.
Third, and this is the act that destroyed the coverage: a debt-collection letter sent through the association's outside counsel not only to the debtor but to the Herricks, all individual association members, and numerous third parties including local business leaders. It stated that Telluride and its affiliates had paid no annual assessments from 2010 to mid-2015 and owed more than $15.5 million, demanded payment, threatened legal action, and claimed there was no “evidence that [Telluride] ever was assessed and/or paid operating dues.”
At trial in June 2022, board members who approved the letter testified that they knew Telluride had paid through the True-Up Process and that the $15.5 million demand ignored those payments. The jury found for the plaintiffs on all claims tried, awarding $225,000 in compensatory damages and declining punitive damages. The court then added $2,298,225 in statutory attorney fees and $328,510.53 in costs.
Note the economics, because they are the real lesson: $225,000 of compensatory damages generated $2.3 million in fees, and none of it was insured.
Three operational consequences for a Colorado board
A knowingly false assessment demand is uninsurable in the Tenth Circuit — and undefended from the outset. The duty to defend is measured against the allegations in the complaint, so an allegation of knowing falsity trips the exclusion even where the causes of action pleaded do not require scienter. The association pays its own lawyers from the first day.
Circulating a collection demand beyond the debtor is what converted a collections dispute into an insurance catastrophe. Sending the letter to the whole membership and to outside business figures is what made it a “publication” of disparaging material. Narrow distribution is the cheap fix, and it costs nothing.
The exposure was established by the directors' own testimony. The exclusion applied because the people who approved the letter admitted on the stand that they knew the number was wrong. The practical answer is documentary: reconcile credits, offsets and non-cash payment arrangements before any demand goes out, and record the reconciliation. A board that can show its arithmetic is a board whose directors are not testifying about what they knew.
One procedural point defense counsel should know
The court held the exclusions applied on a preponderance standard even though the jury had declined to award punitive damages — which in Colorado requires proof beyond a reasonable doubt. Failure to prove a fact beyond a reasonable doubt does not mean it cannot be proven by a preponderance. A board that reads a refused punitive award as vindication is misreading it.
What would change the answer
The holding is narrower than its consequences suggest, and the conditions matter.
An underlying complaint that does not allege knowledge of falsity could leave the duty to defend intact. Policy language without a knowledge-of-falsity exclusion, or with a defence obligation that survives it, changes the analysis. A directors-and-officers tower may respond where a CGL policy does not. A demand that is merely mistaken or negligent rather than knowing is a different case. And this is Tenth Circuit law applying Colorado insurance principles — the outcome elsewhere may differ.
For context on how thin the appellate record otherwise is: across twenty months the Colorado Court of Appeals published only three opinions with a community association as a named party, and the Colorado Supreme Court did not construe CCIOA at all. The underlying claims here included a CCIOA claim under C.R.S. 38-33.3-209.5 against the association, alongside breach of fiduciary duty, aiding and abetting, civil conspiracy and negligence — but the appellate holding is an insurance holding, and that is how it should be cited.
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