We are all still holding the victims of the Surfside Condominium disaster and their families in our thoughts and prayers. This event has shocked us all.
Buildings in the USA should not crumble within mere decades of construction, short of major events such as earthquake, weather perils, etc. Even in the face of such perils, modern construction should withstand most such events, one would expect, or at least mitigate the loss and protect the safety of the occupants.
Although horrified, those of us in the practice of risk management and insurance tend to see events such as these through the lens of our experiences in matters while not the same, but similar. Questions come to mind such as:
What analysis was done by the condominium association and their property manager regarding basic risk management, risk engineering and loss control and, within the context of risk transfer, insurance?
-The association boards, both current and past, have a number of management liability issues with which to contend.
-A common exclusion contained in director’s & officers liability insurance policies is for failure to maintain adequate insurance. Was this common exclusion addressed?
-Even if the D&O insurer eventually ponies up their limits, the limits are likely insufficient.
-The association bylaws likely offer indemnification to the directors and officers, however, the association likely will dissolve for lack of assets. Where will the directors and officers obtain insurance proceeds or indemnification without the two sources of protection? Were any of them even aware of the risks they took on by accepting positions on their association board?
-D&O insurance is “claims made.” To what extent is there “prior acts” coverage extending to decisions made over the past four decades? Will prior boards be covered? indemnified?
Many news media outlets have reported that Miami-Dade Circuit Judge Michael Hanzman, who is presiding over the first series of lawsuits filed in the matter, asserted that there is $30 Million in Property Insurance in place along with $18 Million in Liability insurance. Judge Hanzman is quoted as saying that this is obviously inadequate.
-That is an understatement! Liability claims alone will more than consume all of the primary and excess Commercial General and Umbrella Liability coverage.
-Was additional Umbrella Liability insurance sought by the board? Was it offered by the insurance broker? Will that broker be exposed to E&O for failure to recommend such higher limits?
-$30 Million in Property Insurance is likely inadequate. What did the last Statement or Values show? When was the last building appraisal conducted? Did the individual homeowners carry Condo Pak policies?
There is no mention of exclusions in the Property insurance policy.
-For example, was ground subsidence as a peril covered? What limitations in coverage lurk in the policy language regarding “collapse?” Was that language properly vetted by the board?
• Reports mention that Professor Shimon Wdowinski from Florida International University reported that land under the Surfside condo building had been subsiding since the 1990’s. Was the association board or the property manager aware of the subsidence issue? Should they have been so notified if this information was withheld from them?
• The engineering firm hired by the board in 2018 has been sued. Should their report have been drafted with stronger language regarding the issues that their study uncovered? What will be their liability?
• News reports asserted that there have been recent lawsuits brought by condo residents regarding maintenance issues ostensibly corrosion of steel and concrete supports as the result of exposure to sea water. What did the association board and property manager know and what did they do about the allegations?
• Regarding the property management company, what will be their degree of responsibility? How adequate is their Professional Liability coverage?
• A CNN interview of a structural engineer on June 25 asserted that the collapse was a classic case of subsidence. Could this have been known by the association board and property manager prior to the collapse in view of the allegations brought by previous litigation and from Dr. Wdowinski’s study?
• Subsequent reports suggest that the steel supporting the concrete slabs did not appear to be the same as specified in the building plans. Why not? Where were the code inspectors? Did they sign off on the changes? Were the substitutions substandard?
• Keep in mind that the liability insurance policies for the various contractors who constructed the building, if Occurrence based, remain potentially viable sources of recovery even four decades later if the “occurrence” is deemed to have occurred in negligently constructing the building. That is, if the courts determine that the negligent act occurred during construction, while covered by an “occurrence” based liability policy, even though the failure happened decades later. Courts are asked to determine coverage “triggers” that are oftentimes different than the underwriting intent at the time of policy issuance.
There will be years of investigations and litigation before this matter concludes. Underwriting scrutiny of association insurance programs will likely intensify. Coverage will become more difficult to obtain and pricing will likely increase. Questions are already being raised regarding the ability, or lack thereof, for association boards to adequately govern themselves and properly maintain their real estate. The important thing to do now is to care for the victims and their families. Regardless of the litigation and investigations, these people will never fully recover from this tragedy. We should hold them in our hearts and prayers.