I’m finding it difficult to write an insurance piece about the recent collapse of the Champlain Towers Condominium. Before I dive into the insurance aspects, I have to recognize the human part of this tragedy. When those parts of the building fell in, the lives of every resident of the condo’s 136 units were changed.
Not only were their lives changed, but in the days to follow, the residents of similar structures around the state of Florida were wondering if they would be next. When you look at any of those buildings, they look similar. Many would have been built in the same year, or near the same year, as Champlain. Even if they were newer construction, how could they be sure that the same thing wouldn’t happen?
In and among the human side of this story, is the insurance side. It’s not just about a condominium association’s property policy. It’s about the individual unit owner’s policy.
It’s about the liability policy. It’s about the association directors and officers (D&O) policy. Who knows, possibly even the individual board members’ unit owners’ policies (for their liability in the situation). Between those who survived and those who didn’t there will be life insurance and health insurance policies impacted as well. The insurance cost of this event is potentially catastrophic.
Let’s deal with the property first. There’s no doubt the property was damaged. We could see that. We will look at a sample association’s policy first, and then a sample unit owner’s policy. For this discussion, we are using forms created and put out by ISO.
As a condominium association, they should have a property policy that’s specific to associations. What’s specific to them is the way that coverage applies. Not to get too technical here, but a condominium association is a particular sort of joint ownership of property. Each unit owner buys their unit, essentially the space that they occupy as their dwelling. As a unit owner, they also buy into the association and become a part of it. The association then owns the real property, the buildings and the land.
The association then insures the building as covered property on their policy. Assuming that the association has coverage for the building, we then have to ask the policy what are the covered causes of loss? The coverage form will tell us two things.
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from a Covered Cause of Loss.
3. Covered Causes of Loss
See applicable Causes of Loss form as shown in the Declarations.
This is where the question of coverage gets a bit dicey. If the condo were in over 40 other states, I’d be inclined to say that the most likely causes of loss form would be the CP 10 30 Causes of Loss – Special Form or some derivation of it. But in Florida, it’s almost as likely that there is a CP 10 20 Causes of Loss – Broad Form or worse attached.
Let’s just work from the place where the insured may have had the CP 10 30 or comparable causes of loss form attached. Since we are pretty sure that a collapse happened, we need to see what this form tells us about collapse. I’ll spare you some of the policy language because the first place we see a mention of collapse is under the second list of exclusions in the CP 10 30 (see CP 10 30 10 12, page 4 of 10, B.2.k.). The one piece of that exclusion that needs to be called out is in its exception.
This exclusion, k., does not apply:
(a) To the extent that coverage is provided under the Additional Coverage, Collapse; or
(b) To collapse caused by one or more of the following:
(i) The “specified causes of loss”;
(ii) Breakage of building glass;
(iii) Weight of rain that collects on a roof; or
(iv) Weight of people or personal property.
This gives us a couple of possible solutions to the question, is there coverage. We will look in a moment at the additional coverage for collapse, but we need to look first at the possibilities under “b.” The first possibility sits with those “specified causes of loss.” Without reading that specific part of the form, the specified causes of loss is a list of causes of loss and I would argue there was no evidence of before the collapse occurred. You’ll find the definition of specified causes of loss in the definitions section and see for yourself.
The rest of the list under “b” seems unlikely. There was no evidence that building glass happened before the collapse. We have heard that work had recently been done on the roof, but that would seem to remove the possibility of the weight of rain collecting on the roof, which leaves the weight of people or personal property. That seems unlikely unless there’s clear evidence of a recent significant shift in the number of people residing in the building.
You might say that the building should have been designed to hold the weight of the people and property that could be expected for the number of units in the building. That’s true, except that the building was built in 1981. According to the National Center for Health Statistics, in 1980, 15% of Americans between 20 and 74 were obese. In 2018, 42.8% of Americans were obese. That’s in the neighborhood of 30-40 extra pounds per adult. I doubt that it was a true contributor, but I can’t say that it totally isn’t.
Getting back to the additional coverage for collapse, we find that the collapse must be caused by a limited number of underlying causes. If you want to see all of them, look at CP 10 30 10 12, page 7 of 10, D. Additional Coverage – Collapse. Here are the specific causes that seem to potentially apply.
Building decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse; …
Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs after the construction, remodeling or renovation is complete, but only if the collapse is caused in part by: … a cause listed (above)
Here’s where it gets really sticky because by many reports there was evidence of building decay in the underground parking garage. There have been reports that people who lived there knew that there was concrete and rebar that had decayed significantly. There have also been reports that the association board was made aware of some critical repairs and renovations that needed to be done well before the collapse happened. This brings into question two parts of this coverage. Was the building decay hidden? If it was, did someone know (or should they have known) about the decay?
It would be hard to guess that the board didn’t know about the crumbling concrete and rebar that people had noticed, but as someone observing from afar, I can’t say definitively whether the association did or didn’t know. Remember that the association policy is issued to the association entity, not to any one individual so we have to determine what did the association know and when in order to make a real determination of coverage.
We haven’t even walked into the question about whether there was coverage for the remaining part of the building. That part of the building that was demolished to prevent it from causing additional property damage as Tropical Storm Elsa approached Florida.
The short answer is that the association policy should have an endorsement attached to provide coverage for ordinance or law coverage (CP 04 05 Ordinance or Law Coverage), which provides the loss in value of the undamaged part of the building and the cost of demolition of the undamaged part of the building.
One would hope that the people who only lost their homes and personal property were insured on their own HO 00 06 – Homeowners 6 – Unit-Owners Form. This provides coverage for the personal property and certain building property within the unit. Dive into the form and you will find a similar additional coverage for collapse. It includes very similar language as the association’s causes of loss form does.
This is important for those who lost their homes because they will need two critical coverages from their insurance policy. They’ll need coverage for their personal property and they’ll need coverage for loss of use of their unit because they can’t use it and they need a place to live. A potential issue arises in the way that the collapse coverage is written.
For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.
This Additional Coverage – Collapse does not apply to: a building or any part of a building that is in danger of falling down or caving in; a part of a building that is standing, even if it has separated from another part of the building; or…
We insure for direct physical loss to covered property involving abrupt collapse of a building or any part of a building if such collapse was caused by one or more of the following: … [the list is very similar to the list that we already looked at and the same issues apply, so we’ll leave that to you.]
I bring this section up only because I see the possibility that one might make the argument that the standing part of the building did not collapse and therefore no collapse coverage would apply. This determination would make it so that the residents of that part of the building would not receive any payment for the loss of their personal property that they were not able to retrieve from their unit. It would also limit their payment for loss of use of their unit due to the actions of a civil authority (that condemned the building and ordered the rest of it demolished) to two weeks of additional living expenses.
For my part, since a part of the building did collapse and that collapse did make the rest of the building uninhabitable, that’s enough to trigger coverage for the personal property and additional living expenses for those whose units did not collapse. Even if that’s an overly broad interpretation, it’s times like this when a few insurance companies can make a statement that they’re willing to interpret their policies broadly when it makes sense. It seems like the human thing to do.
What about all of the other issues out there? That’s a good question. So far, there has been more than one suit filed against the association by residents and families of residents that were impacted by the building collapse. This is going to be a big problem that will take more time and space to completely unravel. The suits will extend beyond their commercial general liability policy and likely into their D&O policy (if there is one). None of this fully deals with the human issues at play. People are grieving. People are traumatized. We can only hope that the insurance piece of this puzzle plays out so people are helped.
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