The recent decision of the Third District Court of Appeals in Island Breakers a Condominium, Inc. v. Highlands Underwriters Insurance Company, 20 FLW D2702 (December 13, 1995), provides a Condominium Association with recourse against its insurance company arising from inadequate concrete coverage over balcony reinforcing steel.
Historically, condominiums located in close proximity to the ocean have experienced corrosion of reinforcing steel supporting concrete balconies. Frequently, the balconies crack and permit salt to attack reinforcing steel embedded in the concrete balconies. Typically, an Association will attempt to pursue litigation against those participants responsible for the original design and construction of the building in an effort to recover damages to perform corrective work.
However, as is often the case, the original participants are no longer in business which creates a collection problem. As will be discussed below, the Island Breakers decision may enable an Association to acquire financial recovery from its insurance company based upon the “Additional Coverage Collapse” clause to its insurance policy.
In Island Breakers, the Condominium discovered cracks in the concrete on certain exterior balconies. The cracks allowed water to penetrate the balcony structure causing severe rusting and expansion of the reinforcing bars. This eventually caused the concrete to crack and break away in many areas. The Association’s insurance policy contained an “Additional Coverage – Collapse” clause which stated as follows: “We will pay for loss or damage caused by or resulting from risks of direct physical collapse of a building or any part of the building caused only by one or more of the following . . .
2. Hidden decay: . . . Collapse does not include settling, cracking, shrinkage, bulging or expansion.” When the insurance company denied the Association’s claim, the Association filed suit alleging that coverage should be afforded for the “collapse” of one or more of the concrete balconies. One of the Appellate Judges indicated in a concurring opinion that it is not necessary for a balcony to fall off a building in order for there to be a “collapse.”
However, it is necessary to show that there has been a substantial impairment of the structural integrity of the balcony. This is a threshold factual issue which must be analyzed by the trial court in order to determine whether coverage exists.
The Appellate Court noted that it is also necessary to analyze whether decay which occurred in this case was “hidden.” In the event the Association did not know or did not have reason to know of the deterioration of the steel reinforcing bars inside the concrete, the decay may be deemed “hidden” and should be covered by the policy.
The Appellate Court ruled that due to the existence of this factual issue it was improper for the trial court to have granted summary judgment in favor of the insurance carrier. The case has been remanded to the trial court for further proceedings on these factual issues.
Until the Island Breakers decision, the insurance industry has traditionally denied these claims unless a collapse has actually occurred.
All associations experiencing similar problems should consider the possibility that coverage may exist under insurance policies maintained by the Association. Likewise, Associations should be mindful that once it is placed on notice of problems associated with these types of defects (rust displayed on balcony surfaces), action must be taken within four years of its first discovery in order to pursue a claim against those that participated in the original design and construction of the project. Section 95.11, Florida Statutes provides the Association with an opportunity to sue those responsible for defective design and construction for an extended period of time in the event that the defects qualify as being, “latent” or “hidden.” To the extent that the original participants are out of business and uncollectible, the Association’s insurance policy may afford monetary relief. In light of the expense of balcony renovation work which may include removal of balcony coverings such as tile, removal of corrosion on reinforcing steel and application of a waterproofing membrane, all sources of monetary relief should be explored.