Florida Apartment Block Collapse – Will the property insurance avoid liability?

It appears in the case of the Florida apartment block collapse that the equivalent of the body corporate management had received a report in 2019 that identified serious problems with the structural integrity of the building.

It would appear that this had not been acted upon fast enough with tragic consequences.

The question that arises in my mind was whether the report was shared with the building’s insurers. If not, there is every likelihood that the insurers will rely on the “reasonable care” condition in the policy.

I do not have access to the relevant wording in this particular case but if it was to be insured under an Australian Industrial Special Risks Policy, then the wording would read:

11.       PRECAUTIONS TO PREVENT LOSS

The Insured shall take all reasonable precautions to prevent loss, destruction or damage to the property insured by this Policy.”

There are few cases involving a test as to what constitutes ‘reasonable care’. The problem no doubt centres on the meaning of ‘reasonable’. Many losses arise through the negligence of some person. A momentary lapse of concentration can result in a massive loss. Insurance is there to protect the Insured from, among other things, stupid mistakes. When a stupid mistake becomes ‘unreasonable care’, it is impossible to adequately describe in a contract of insurance, and hence the low numbers of test cases.

The reality is that with the benefit of hindsight many losses appear to be a caught by this condition, but it is not that simple.

The Insurer has to prove three things before this important condition can be relied upon.

1. That the Insured identified the risk before the loss took place;
2. That the Insured understood that risk; and
3. The Insured courted the risk. That is that they accepted the risk.

To me this condition links back to the principle of utmost good faith and the need for the Insured to bring to the attention of the insurer anything that increases the risk beyond the norm.

I would also make the point that I do not believe that the condition needs to be in the policy as it does fall within the underlying principle of utmost good faith as I mentioned but it is certainly good practice to include the condition.

So going back to the It would appear that the Insured or their representative was aware of the problem (that is the risk had been identified). Further, the report clearly shows that the risk was real and serious.

The two questions that follow then are why were people allowed to remain in residence and was the insurer made aware of the deterioration in the building?

I cannot answer the first question. I am sure anyone that survived this event that was party to that decision will have a lot on their mind.

If the answer to the second question is no, then I suspect insurers will be seeking legal advice as to whether they are required to meet any claim for the catastrophic loss.

In our role at LMI, whether it be during a claim, a risk survey or in preparation of a business continuity plan, we can identify risks that we deem to be quite dangerous.  It is so frustrating for us when the advice to address the problem is not taken seriously or in a timely manner.

Body Corporates are arguably the worst offenders due to either a lack of funds or something as simple as the chairman or single representative not taking the issue seriously.

I always take the time to point out the personal responsibility that the individual or committee is accepting by not addressing the issue and or not bringing the issue to their insurers.

The Florida collapse is a tragic situation, and my heart goes out to the families of the victims. Hopefully we can all learn from these events and reduce the likelihood of a reoccurrence.