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After the Collapse

Following the Surfside tragedy, uncertainty remains for high-rise litigation in Florida and beyond

September 01, 2021 Photo

Horrifying images consumed news cycles and social media following the Champlain Towers South’s sudden collapse in Surfside, Florida. Video cameras from adjacent buildings captured the collapse in real-time, providing a front-row seat to the building’s demise, and eyes around the globe focused on recovery efforts, with an ancillary quest to shed light on causation.

Media reports, forensic consultants, percipient witnesses, and others hypothesized on the mechanism of failure without reaching consensus. After all, the collapse and subsequent debris removal left forensic experts with a paucity of clues regarding the fault that led to this horrific result. Deferred maintenance, seawater, sinkholes, adjacent construction, construction inspectors, public entities, repair contractors, and original construction entities were all suspects called out as rescue efforts proceeded. And the list continues to grow with the passage of time and investigation. The most recent additions to the list: consultants, architects, and others who have lent advice over time to the condominium association. 

Everyone agrees that whatever went wrong and caused the collapse must be avoided in the future—prudent risk management dictates doing what is required now to prevent future incidents. In actuality, years may pass before we have better information on what caused or contributed to this disaster, and even that information may be sheer speculation given the recovery efforts and subsequent demolition. Left in the wake will be a labyrinth of changes to building codes, underwriting, and more. 

For those in the construction industry, life safety issues will be top of mind. Catastrophic events—like the Northridge earthquake, for example—often give rise to subsequent building code changes based on lessons learned. When catastrophic building failures occur, causation is essential and provides the impetus for subsequent codes and statutory changes.

Aside from code issues, the immediate takeaway for board members in other high-rise homeowner associations is the need to effect repairs when life safety issues are present. Juxtapose this need against the inclination to defer maintenance, building reserves, and financial circumstances of individual owners, and these conflicting issues most often result in no action and increased exposure. 

Champlain Towers South serves as a case in point: Detailed engineering reports commissioned at the association’s behest showed abundant cracking in concrete columns, beams, and walls. Reports revealed lack of proper drainage under the pool deck, which caused significant structural damage. Resulting disagreements amongst the board led to inaction and cost to repair estimates, which grew over two years from $9 million to $15 million. 

Whether failure to effect these repairs led to the collapse is unknown as of this writing. What is known is that this tale of sidestepping structural repair issues, for whatever reasons, has sharpened individual and industry focus on the fiduciary duties and responsibilities individual directors owe in the homeowners association context. Underwriters are likewise focusing on the issue, which may play out in real-time in the form of hard insurance markets with corresponding heightened premiums.

The Aftermath

Within a week of the collapse, five lawsuits named the Champlain Towers South Condominium Association as a defendant. Some complaints also named consultants and architects who inspected or consulted on the condo tower’s stability. As of this writing, there are 38 lawsuits, 30 of which are wrongful death cases. The 21 parties include contractors, the condominium association for Champlain Towers South and the neighboring association, insurers, consultants, and inspectors. Parties involved in the class action have two separate tracks/buckets: personal injury/wrongful death and economic loss/property damage.

Those in the construction industry are closely watching to see whether the original construction entities will enter the foray despite a formidable defense presented by Florida’s 10-year statute of repose for construction defects. Specifically, the statute of repose for “an action founded on the design, planning, or construction of an improvement to real property” prohibits a claim for a latent construction defect 10 years after the latest of the following events:

  • The owner’s actual possession.
  • The issuance of a certificate of occupancy.
  • The abandonment of the construction, if not completed; or
  • The completion or termination of the contract between the engineer, registered architect, or licensed contractor and his or her employer.

Florida’s statute of repose for construction-defect claims has been through many changes and challenges. While many issues have been put to rest, it remains to be seen whether the Champlain Towers South building collapse will generate any semblance of a defect suit that would run afoul of this statute, or if the statute otherwise evolves through caselaw and legislative action. For example, future litigation may focus on determining what claims are “founded on the design, planning, or construction of an improvement to real property.” [See Manney v. MBV Eng’g, Inc., 273 So. 3d 214, 217 (Fla. 5th DCA 2019), finding that a claim for negligently inspecting newly completed construction was not “founded on the design, planning, or construction of an improvement to real property.”]

The wrongful death statute, meanwhile, runs from the date of the incident, which is the collapse in this case. Whether complaints expand to name initial builders and trades involved in the construction sequence under this type of argument remains to be seen. If they are allowed, expect coverage issues, and litigation will assuredly predominate. Similarly, broker/agents, home inspectors, and repair contractors may be drawn into litigation. Between the coverage arguments, muddled causation, multiple theories of liability, and myriad parties implicated, the collapse promises full employment for every stakeholder in the litigation process.

Litigation Challenges

Looking forward, consider the challenges of voir dire given the saturation of media coverage in the days following the collapse. Add in the reptile theory, social inflation, and nuclear verdicts, and the potential damages are staggering. Survivors, families of victims, owners of units, and lenders all have viable claims that are obvious.

The number of lawsuits filed, and parties implicated by the filings will grow with time. However, assets to respond to these lawsuits from implicated parties, insurance or otherwise, have limits. During the first court hearing, counsel represented that the building has $30 million in property coverage and $18 million in liability coverage, which Miami-Dade Circuit Judge Michael Hanzman suggested would not be enough to cover victims. Expected proceeds from the property sale potentially add at least $100 million to the proverbial settlement pot. It is simply not enough.

Consequently, expect creative arguments and filings leveled against parties that have yet to be named asserting blame to increase the pool of settlement funds. Theories of liability and legal concepts will undoubtedly be tested, possibly including fiduciary duties, the statute of repose, public immunities, and more.

The Broader Impact

It is too early to know what will happen next, aside from years of litigation with hundreds of plaintiffs and numerous defendants. Beyond Surfside, the collapse has opened a new chapter for high-rise associations and building owners throughout the nation.

Intense scrutiny of individual directors of associations coupled with an energetic focus on deferred maintenance translated immediately to heightened demands from the plaintiff associations and high-rise owners. Some ordered renewed investigation and testing to discharge fiduciary obligations when life safety issues were present. Plaintiff lawyers and forensic consultants report a spike in inquiries in high-rise products. Ambitious plaintiffs used the collapse as a bargaining chip of sorts to attempt extorted premiums in settlement conferences. Notably, no longer was the focus on defect issues within the statute of repose, as products of a later vintage became the focus for many individual directors and residents of high-rise associations. At the same time, underwriters moved into action, examining policy language, premium, and resulting risks associated with this building product.

On the opposite coast, residents in a high-rise condominium in Marina del Rey, California, reflected on a history of disputes over long-deferred maintenance and raised the possibility they would be subject to the corrosive nature of water and sea air—something that may have contributed to the failure of Champlain Towers South. Los Angeles County Building inspectors poured over the three high rises at issue within days, concluding that the spalled concrete, leaking decks, and corroded pipes posed no immediate threat of catastrophic failure. Structural engineers were engaged to prepare a comprehensive repair plan. Despite this inspection, individual unit owners threatened litigation against home inspectors and others, citing the Surfside collapse.

Throughout the nation, construction-defect claims in high-rise products already in litigation felt the impact of the collapse regardless of the stage of the claim. Mediators handling this genre of claim speak of the issue repeatedly coming up in settlement conferences as boards summon both counsel and consultants with new demands. In some instances, settlement demands hardened, were pulled, and overall negotiations ceased due to the “Surfside issue.”

Looking Back for Clues on 
What Lies Ahead

Relatively recent history provides high-profile examples of construction failures over the past few decades. Common to each case discussed below are the complete failures of the as-built systems.

Hotel Balcony Collapse: Suspended layers of balconies over an atrium in Kansas City filled with spectators came crashing down on elegantly attired people celebrating a tea dance at the Hyatt Regency Hotel in Kansas City, Missouri on the evening of July 17, 1981. Killed in the collapse were 114 people, with 216 injured. This disaster resulted in billions of dollars in insurance claims, legal investigations, reforms to engineering ethics, and city government reforms in the years to come.

Reforms to engineering ethics, safety, and emergency management remain today. It was the deadliest structure failure since the collapse of Pemberton Mill over 120 years earlier and remained the deadliest structure failure in the nation until the collapse of the World Trade Center 20 years later. Design professionals were squarely the mechanism of failure for the new construction. Challenges for the defense were resolving the multitude of claims with a dearth of assets, insurance or otherwise.

Concert Stage Collapse: On Saturday, Aug. 13, 2011, a stage at the Indiana State Fair collapsed, killing seven people and injuring 58. A gust of wind from a severe thunderstorm caused the stage’s roof to collapse. Design, construction, and inspection were all faulted as contributing to the structural problems or preventing them from being discovered. Indiana’s applicable code in place waived important requirements for temporary structures.

The construction entity that installed the structure, which begame the target party, deviated from the directions provided. Other parties, including the state of Indiana and the manufacturer of the structure, were brought into the fray driven by the contracting entity’s damages and lack of insurance assets. Immunities enjoyed by the public entity were no defense, perhaps foreshadowing similar arguments in Surfside.

Berkeley Balcony Collapse: In Northern California, foreign exchange students gathered on a balcony deck on June 16, 2015 were suddenly killed or injured when the balcony collapsed. Five Irish J-1 visa students and one Irish-American died, and seven others were injured. The balcony at issue, located on the fifth floor of an apartment building, generated an immediate criminal probe, widespread investigation, and intense litigation. The balcony failure prompted legislative changes, inspections, and heightened settlement demands for balcony issues in active defect cases throughout the nation.

Berkeley’s balcony collapse tower was somewhere in the $250 million range for the 13 plaintiffs. Champlain Towers South has 98 fatalities, with claims by survivors, property owners, and mortgage holders—all with competing claims for what appears to be $150 million in assets. This lack of insurance or viable assets to respond to the claims means the focus will turn to insurance brokers, contractors, inspectors, public entities, and more to increase the settlement pool under various theories.

These historic incidents share commonality with Surfside in the potent combination of fatalities and injuries, of which claims exceed available assets to make the victims whole. Each event happened without warning, generating a corresponding saturation in media exposure. Each case generated a subsequent wave of litigation fueled by the plaintiff bar cruising for what seemed to be an easy case promising a handsome payoff.

Unlike Surfside, however, each of the high profile failures happened within the statute of repose for construction. Surfside is a unique example of a construction failure without clear causation in a product well beyond the statute of repose. Surfside’s lack of insurance assets, age of the structure, and paper trail of documented complaints mean the litigation will be markedly different from prior high-profile failures. The industry is closely watching as the investigation and filings continue.

Whether this is considered a unicorn in the construction claims arena or a precursor to a new genre of litigation is top of mind for underwriters, general counsel, risk managers, and claim professionals. There is, though, the certainty of a multitude of lawsuits, emerging exclusionary language, statutory enactments, and underwriting changes that will follow in the months to come.

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About The Authors
Stephen J. Henning

Stephen J. Henning is a partner at Wood, Smith, Henning & Berman.  shenning@wshblaw.com

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