That's two triple-play combinations that will never be forgotten. One entered the record books in 1910 as one of the most exciting events in sports (and was inducted into the Hall of Fame 36 years later); the other practically wiped a major American metropolis off the map and will be with us for decades, or more, to come.

Hurricane, wind, water, and flood damage questions continue to come into FC&S. We continue to be amazed at the staggering losses. This column is about yet another hurricane loss we'd been consulted on by a subscriber to FC&S, and spun yet again a different way. It isn't the insurance companies' faults that our industry isn't the panacea for the ills wrought by the wrath of the storms. There just are things for which insurance isn't the appropriate, or even possible, remedy.

Note that this happened to have occurred in Florida. But it is a scene that also could be played out in Alabama, Mississippi, Louisiana, or any coastal area in the south or southeast.

The question is from an FC&S subscribing insurance company claim department supervisor.

Condominium Gutting Excluded as an Act or Decisions?

“We have several customers of our insurance company insured on standard condominium unit owners' policies, whom resided in a large condominium complex in Florida. The condo building was damaged by the recent hurricanes; however, not all units sustained physical damage. None of our insureds' units were damaged. Because some of the damaged units were found to contain mold, the condo association made the decision to gut all units to prevent any further spread. Now our insureds are looking to us to cover these costs. Are we responsible?”

To the last question, “Are we responsible?” No, the storm was. But are you going to pay for it? Under the contract, you probably shouldn't — and that's a shame for the poor people that live(d) there.

The FC&S answer, as prepared by expert editor/analyst Diane Richardson, CPCU: We are assuming that the units in question did not sustain direct physical damage from wind or water. Therefore, the standard condominium policy does not provide coverage in the situation described.

The policy excludes loss to property caused by acts or decisions of any organization. The condo association is the organization; the decision was to gut the property and the act was the actual gutting. Therefore, there is no coverage.

However, in the course of the gutting, if an ensuing loss occurred — collapse because of faulty methods in renovation, fire from an improperly disconnected gas line, etc. — that loss would be covered unless otherwise excluded. (That's a real relief to the condo owners, I'm sure!)

We also think that in most situations, the condo master policy provides primary coverage, if any. The ISO condo association form is written this way; however, having reviewed that form, the exclusion reads the same — loss caused by acts or decisions of any organization is not covered. There was no applicable case law on this situation.

Some More Questions

That leaves me with a few more questions. Not about the analysis of the policy — that is correct — but about the situation and what other recourse the condo owner might have.

Who pays for the cost of gutting the units to the studs? As it was ordered by the unit board of directors, is it at the association's expense — or is that to be passed to the unit owner by way of assessment? That's a tough bone — “Here, gut your undamaged property to the studs, and here's the bill for it. Now it's up to you as to how it gets restored… .”

Secondly, is there any liability to the board for its order to gut the units? At the FC&S, we have to keep our interpretations to the insurance coverage situation, but those initials behind my name mean I can (legally) speculate.

Where's the negligence? It might be that the decision is the right one, so negligence does not apply. There may be some analogy to the “fire break” line of cases. There, a governmental body can order the destruction of property to break the advance of a fire, such as homes, outbuildings, and crops. But in this case, the owner must be reimbursed. Can the association be made to reimburse the unit owners?

Is there a “right of quiet enjoyment” argument that can be made by the unit owners? The right of quiet enjoyment is the right to possession of premises in peace and without disturbance. This has been applied in cases where, for instance, a person buys a piece of property because of the view of the lake. Then a subsequent buyer of adjoining property puts up a building or fence that blocks the view. The covenant or right of quiet enjoyment is sometimes brought up in nuisance cases such as this. How they resolve is dependent on jurisdiction and specific circumstance.

Finally, is the association governing board allowed to do this? To damage undamaged property because of the possibility of spreading mold? Have they gone beyond their charter? These are legal questions, but relevant.

The ACE Claims Conference is in New Orleans this June. Where else would you expect the National Underwriter Company to hold an important claim event but at the site of one of the largest claim-centered areas of the country? “Where else but?” I suggested as a tag line (which was discarded by clearer thinkers).

But we will be there. And FC&S is conducting a seminar on cat-related losses like the one I've just described, and, in fact, including this exact question.

Maybe you'll want to consider joining us at ACE to join in on the discussion of these interesting, but hurtful, questions. (Visit www.aceclaimsevent.com for more information and registration for ACE.)

Insurance recovery will rebuild a lot of damaged property. But it can't do it all. It just can't. All of us in the industry wish it could, but that's just wishing.

See you in New Orleans?

Bruce Hillman, J.D., is editorial director, Professional Publishing Division, of the National Underwriter Co.

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