The tragic collapse of the Champlain Towers South condominium in Surfside, Florida, immediately brought to the fore questions about building structural integrity and safety. But as surviving condo owners filed insurance claims and started trying to rebuild their lives, the tragedy is bringing to light big insurance problems in the state.
The disaster will reveal how most property owners in Florida are underinsured, with bigger implications about the insurance market in a state that is seeing rising sea levels and increasingly severe storms with climate change, according to Kristen White, a Senior Associate and Managing Attorney of Roig Lawyers’ First-Party Property Division. Roig Lawyers is a minority-owned law firm that focuses on insurance.
Litigation and Payouts Will Take Years
Attorneys have already filed dozens of lawsuits in the wake of the collapse seeking about $1 billion in payouts, but the condo association’s policy limit of $50 million means condo owners are in the beginning of a long fight to get a share of a small pot.
With a condo, a homeowners’ insurance policy will typically cover everything in the unit inside the drywall. The condo association’s commercial policy typically covers the drywall to the outside – the expensive stuff. Further, Commercial insurers only cover specific causes of loss, and those insurers won’t start paying claims until that cause is determined, which could take years. “And some of the homeowner carriers won’t pay until the commercial policy pays out, so some of the condo owners will have to wait,” White says.
The policy limits are also what were bargained for by each condo unit owner. It will be very difficult for the owners to find a way to exceed the insurance policy limit.
“The condo owners would have to find some bad faith to prove willful actions or willful negligence where someone was criminally liable. They would have to first prove the insurance company breached contract by not paying everything, and then they would have to prove bad faith,” she says. “There are a lot of things that will have to come into play to get beyond the policy limits.”
The litigation process will drag on for years, which will not be helpful for condo owners who have lost everything.
“We’re probably going to start hearing stories once we get a cause of loss and most of the policies begin to pay out,” White predicts. “Someone with a ground floor condo, one bed and one bath, may get $20,000 from their individual homeowner’s insurance company, and that’s it. Their mortgage may be closer to $200,000. That owner will have to wait for the condo association’s insurer to pay out, and maybe they won’t cover the $180,000. What’s that condo owner going to do?”
Winning Against Insurers, Everyone Loses
If a court does rule in favor of condo owners to exceed the policy limits, it could push the insurance carriers into insolvency or out of the market altogether. Florida has already been seeing pressure on its insurance market because of climate change. Citizens insurance, the state insurer of last resort, estimated it would have over 750,000 policies by the end of 2021, up from 420,000 policies in October 2019, as other carriers leave certain areas.
“It’s going to become more difficult to get coverage in Florida,” White says. “Carriers are going insolvent, trying to balance their risk, and leaving the market, which is creating a vacuum. With the passage of SB 76, policies are going to get stricter, and insurance will get more expensive for less coverage.”
Florida property owners will see taxes and premiums increase to offset the increased costs and risks. Premiums don’t just pay for property; they pay for adjusters, underwriters, customer service, and litigation. White noted that insurance fraud will add more pressure to the market.
“Insurers are fighting lawsuits because they can’t just pay out every claim due to the terms and conditions of the policies. They have to fight the claims that aren’t legitimate so they can pay the ones that are,” White says. “That’s what’s going to happen with Surfside. There’s going to be a lot of litigation for years to figure out how much the carriers will pay. Those are all costs — for lawyers, engineers, and legal fees. Who will bear those costs? Policyholders.”