The collapse of a section of a Surfside, Florida, condominium building in which at least 18 have been confirmed dead and 145 are still unaccounted for is likely to lead to protracted litigation that could trigger a widening pool of property and liability claims, experts say.
So far at least four negligence lawsuits have been filed on behalf of surviving residents and family of those missing against Champlain Towers South Condo Association Inc. alleging that it failed to secure and safeguard the lives and property of plaintiffs, and more are expected.
Property coverage for the building was led by Great American Insurance Co. under an all other perils property policy, market sources say. The condo association also had a $5 million commercial general liability policy provided by James River Insurance Co., according to various reports. Both insurers have yet to respond to calls for comment.
About 55 apartment units in the 12-story, 136-unit Champlain Towers South condo building were destroyed in the collapse that occurred June 24. The residential property was built in 1981.
“When you have a tragedy of this magnitude there’s going to be lawsuits flying left, right and center, there’s going to be insurance implications everywhere you turn on different kinds of coverage,” said Allen Wolff, a New York-based shareholder at Anderson Kill P.C.
In addition to property and commercial general liability, the event could potentially trigger a range of claims under umbrella and excess liability, directors and officers, errors and omissions and possibly renters policies.
Engineers, architects, contractors that worked or advised on the property, building inspectors and adjacent properties that had work done that might have contributed to the collapse could also be drawn into the litigation, attorneys say.
Most condo association boards carry D&O insurance for management decisions, but typically the policy doesn’t cover bodily injury or property damage type claims, Mr. Wolff said.
“That doesn’t mean there wouldn’t be other losses that people would say are D&O-related, such as a finding there was financial mismanagement, failure to properly handle the business of the condo association such that work that should have been done wasn’t because they didn’t have the money,” he said.
A 2018 structural engineering report provided to the Champlain Towers South condominium association detailed numerous problems that required repairs and maintenance, including cracks in the concrete and water damage. The condo association in April had approved a $15 million assessment to complete repairs required under the county’s 40-year recertification process, according to reports.
The property policy may also provide business interruption coverage that would insure the lost profits that the property would generate if it is shuttered due to a covered cause of loss, Mr. Wolff said. “That is being litigated quite heavily with respect to COVID these days in those kinds of cases.”
Coverage questions
Structural collapse of a building is typically caused by several factors, but whether coverage is afforded under the property policy is going to depend on what causes of collapse are covered, policy provisions and other factors, experts say.
Derek Goldsmith, a Fort Lauderdale, Florida-based partner with defense law firm Kelley Kronenberg P.A. who represents insurers in coverage disputes, said, “The big issue is what caused this loss and was the cause of loss known to the insured before the collapse which allowed them time to react, and they failed to do so.”
If the investigation reveals what caused the collapse was unknown to the insured, there may be coverage under the policy, but there may be obstacles to coverage “if the collapse was the result of some excluded event such as wear and tear, deterioration, faulty repairs, neglect and the insured knew about this,” he said.
Under Florida law, any misstatement in the insurance application can be used as a basis to void the policy, said Corey Harris, an attorney at Merlin Law Group in Tampa, Florida. “It doesn’t have to be intentional, it just has to be a misstatement… If (the insurer) can show that, it may not matter what the policy provides coverage for if there is an issue with the application,” Mr. Harris said.
Typically collapse language is found under the additional coverage in a property policy.
Such additional coverage will have its own insuring clause, its own list of exclusions and may have its own list of exceptions to those exclusions, Mr. Wolff said. “In many instances, policies that allow for abrupt collapse as an additional coverage will require certain things to trigger that coverage,” he said.
Causation will be in play, said Leslie Thorne, a partner at Haynes and Boone LLP, in New York. Once that is determined, it will be a question of property insurers paying out whatever limits are provided under the policy and then subrogating and pursuing claims against arguably responsible parties, including inspectors, engineers, contractors and their insurers, she said.
Policies sometimes have exclusions related to collapse and earth movement and “both of those things could become issues here depending on what ultimate cause is determined,” Ms. Thorne said.
If there are a number of different factors that led to the collapse, the question becomes “is there anti-concurrent causation language in the policy in the exclusion section and if there is, how does that affect it?” Mr. Harris said.
The anti-concurrent causation clause is intended to eliminate coverage for any loss that’s partially caused by an excluded peril.
Decay and defective materials or methods of construction are two policy provisions that could raise coverage hurdles, said Alan Packer, managing partner in the Walnut Creek, California, office of Newmeyer & Dillion LLP.
If the collapse is caused by decay that is hidden from view, coverage would be afforded, unless the presence of such decay is known to an insured prior to collapse, Mr. Packer said. “I could see an insurer saying, ‘Look, we don’t cover collapse if it’s caused by decay that was known to the association prior to the collapse occurring,’” he said.
If a building collapses during the construction, remodeling or renovation due to defective material or workmanship, there is coverage, but “if it turns out your building was built 40 years ago and that’s why the collapse occurred you could end up with an exclusion there also,” Mr. Packer said.
Several things have to happen for a building like this to collapse, said Anne Cope, chief engineer at the Insurance Institute for Business and Home Safety in Rock Hill, South Carolina.
“We tend to think of buildings as permanent because materials like concrete and steel are so hard, and they are not; they have to be maintained. If they are injured, they have to be repaired, just like people do,” she said.
“Sadly, it looks like the building that came down was showing signs of distress, showing that it was injured,” Ms. Cope said.
Risk management focus
Many risk management lessons will be learned from this event, experts say.
Policyholders should always be reviewing their coverage, Ms. Thorne said. “Entirely unexpected events can happen. Businesses and homeowners don’t just need to be prepared for catastrophe loss if they are located in a hurricane zone,” she said.
Risk managers and building owners should be regularly checking on their properties and having areas that might be vulnerable to water corrosion or damage evaluated, Ms. Cope said.
While this building was built in a pre-Hurricane Andrew timeline, south Florida was known to have better building codes than the rest of the entire country, even pre-Andrew, Ms. Cope said.
“My question is, what about buildings in the states that don’t have statewide building codes? What about the coasts of Texas and Mississippi? What questions should we be asking there?” she said.
