The fallout from the collapse of the 136-unit Champlain Towers South condominium in Surfside, FL, continues to impact the entire country. As we cope with the horrific loss of life resulting from this tragedy, we are seeing its aftermath beginning to play out.
In the weeks following the collapse, several Miami area residential structures have been forced to evacuate due to unsafe conditions. Most notably, the city of North Miami Beach ordered the immediate evacuation of nearby Crestview Towers. Engineers ruled this 156-unit building unsafe and uninhabitable following an inspection in January as part of its 40-year recertification evaluation. These events will leave a tremendous number of questions in the months to come, and from an insurance standpoint, there is much to discuss.
Several lawsuits have already been filed against the Champlain Towers South condominium association by immediate family members of victims, alleging that the association failed to secure and protect the lives and property of plaintiffs. There will undoubtedly be years of similar litigation in the near future. Condo associations and all real estate owners should closely review their insurance programs (property, general liability, directors & officers, and umbrella/excess coverage) and evaluate whether or not their policies can withstand an event of this magnitude. Are the limits sufficient? Are the terms broad enough to protect the individuals and entities for both first-party loss and third-party liability?
Along with property owners and property management companies, other parties such as architects, engineers, and contractors may also be liable. While no official cause has been declared for the Champlain Towers South collapse, reports of structural damage resulting from a contractor error in the building’s pool deck have surfaced as a possible reason. For contractors and architects, a state’s statute of repose (10 years in Florida) should shield the parties involved in the initial construction from liability for structural errors, but perhaps not those involved in recent renovations or maintenance.
Third-Party Liability Questions
Apart from those directly connected with Champlain Towers South, third-party liability questions are also being raised due to the construction of a neighboring building. Highlighted in an article from CBS News and initially reported by The Washington Post, developers of Eighty Seven Park, located directly next to Champlain Towers South, offered the Champlain Towers condominium association $400,000 amid resident complaints. Champlain Towers residents voiced concerns about construction shaking the foundation of their building while Eighty Seven Park was under construction from 2016 to 2019. The developers allegedly asked for expanded construction hours, a commitment never to oppose the project or developer publicly, and an agreement to release the developers from all liability. The proposal was un-dated and never ratified.
While the construction of Eighty Seven Park is not currently being pointed to as a reason for the Champlain Towers South collapse, the topic of third-party liability for neighboring developers is raised. Developers or their general counsel must evaluate the zone of influence early on in the planning phase and adopt risk mitigation and transfer strategies appropriate for the risk, quantified through a pre-construction risk assessment.
As evidenced by the evacuation of Crestview Towers and other buildings surrounding the Champlain Towers South site, neighboring businesses can and will be affected following an event of this magnitude. When unforeseen circumstances and events halt business, there are a few sources of potential relief. These include:
- Business Interruption Coverage – A policy that supplements a businesses’ income in the event of being forced to cease operations due to things like property damages (i.e., debris falling on a building).
- Civil Authority Coverage – Covers the loss of income due to a government entity denying access to the building.
- Ingress/Egress Coverage – Similar to Civil Authority coverage, but a government order is not needed to trigger coverage.
Rebuilding: More Than Meets the Eye
There’s much more to property coverage than just recouping the cost to rebuild a structure in the event of its destruction. Debris removal is a crucial rebuilding step that can be easily overlooked – and the standard limit included in a property policy is often inadequate. The Champlain Towers South site will require the removal of millions of pounds of concrete and steel because of the initial building collapse and the controlled demolition of the remaining structure.
For property owners in areas prone to natural disasters such as hurricanes, tornadoes and earthquakes, ensuring adequate debris removal coverage is a must before any rebuilding efforts can get off the ground.
Whether or not land is suitable for rebuilding is another obstacle to the rebuilding process. Factors such as the soil a property was built on and new building codes can all affect whether or not a property can be fully rebuilt, partially rebuilt, or deemed a total loss. If a building is deemed a total loss and rebuilding is not an option, real estate owners may choose to “cash-out” on their property policies.
For Champlain Towers South, engineers have questioned whether the corrosive environment created by salty ocean air is a reason for the collapse, leaving the property’s future in the air.
Coverage and Limits Review is Critical
The Champlain Towers South tragedy will undoubtedly leave us with even more questions in the months and years ahead. While it is impossible to fully prepare for a disaster of this magnitude, dusting off policies to review coverage and limits or hiring a third party to conduct an insurance program audit is a prudent step for any risk manager or owner in the real estate sector.