Surfside Collapse Could Spur National Rise in Insurance-Related Costs for Multi-Family Buildings

Shock waves from the collapse of the Champlain Towers South condominium in Surfside, Florida, could spur nationwide increases in insurance-related costs for aging, multi-family residential buildings.

Source: USA Today | Published on August 2, 2021

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As investigators try to determine what caused the June 24 disaster that killed 98 people, the U.S. insurance industry is weighing stricter underwriting requirements, including additional structural inspections and regular maintenance reports. That could require residents of condos, co-ops and private, multi-family residential buildings to pay for repair or reconstruction work identified by the examinations.

Inspections of this nature are already common, said Karen Collins, a vice president for the American Property Casualty Insurance Association, the primary U.S. trade group for home, auto and business insurers.

"However, in response to the collapse in Surfside, it is possible insurers in Florida and other states may begin to require more frequent inspections and better maintenance records, such as maintenance logs and repair records, as a condition for policy coverage,” Collins said in an email to USA TODAY.

Driving the potential change is the history of unaddressed repairs at Champlain Towers South. An April 9 letter from Jean Wodnicki, president of the condo association's board of directors, warned that millions of dollars were needed to deal with a “major error” in the building's design, crumbling concrete columns in the garage area beneath the structure, cracking concrete over rusting rebar and other serious problems.

While warning that the problems were getting worse, Wodnicki's letter alluded to delays in winning agreement from condo owners for the expensive work. “We have discussed, debated, and argued for years now, and will continue to do so for years to come as different items come into play,” she wrote.

A Florida judge announced this month that victims and families affected by one of the worst residential building collapses in U.S. history would receive $150 million to start, including $50 million from insurance policies and at least $100 million from a sale of the property. Those losses, combined with the unforeseen possibility that a condominium tower in the U.S. could collapse, have startled the insurance industry.

Already this year, millions of dollars in insurance claims have been filed in connection with wildfires on the West Coast and for a major winter storm in Texas that left millions without power during sub-freezing temperatures.

Those events followed 22 different billion-dollar weather and climate disasters in 2020, a new annual record, according to a report by the National Oceanic and Atmospheric Administration's Office for Coastal Management.

The Surfside collapse represents "one more stick on the pile" pushing insurance carriers toward more conservative underwriting, said Christopher Boggs, the Independent Insurance Agents & Brokers of America's executive director of risk management and education.

"If it becomes an underwriting requirement to get engineering reports," owners and shareholders of condos, co-operatives and other aging high-rises will be hit with financial "assessments to pay for work the engineers say is needed to make the buildings safe," said Boggs.

Anticipating tougher questions from insurance carriers, owners and boards in some New York City-area high rises "want to know, and want to know by yesterday, if they have any issues" that could affect their insurance coverage, said Joel Meskin, an attorney and insurance broker who has written insurance for such buildings as managing director of community association products and risk management for The McGowan Companies, an Ohio-based conglomerate and a major U.S. insurance intermediary.

Robin Manougian writes insurance for roughly 150 associations, including some high-rises, as vice president of John Manougian Insurance Agency, a division of JGS Insurance in Silver Spring, Maryland. She said she hasn't seen insurers decline to renew coverage for such properties.

However, she said, "if a carrier steps up its inspections and finds that things are not normal, they may look to withdraw."

That's already happening in Florida, where decades-old condo towers dot the coast. Following the Surfside disaster, Miami-Dade County Mayor Daniella Levine Cava ordered safety audits of all buildings that are five stories or higher and at or near 40 years old.

“Many insurers in Florida are re-assessing their coastal exposure in Florida, which has been an ongoing activity that began prior to the tragic collapse of the Champlain Towers South," said Collins, the American Property Casualty Insurance Association executive.

Companies cite problems associated with coastal flooding and rising water levels, particularly water intrusion that can affect building foundations, Collins said.

Karen Roach, a spokeswoman for the Florida Office of Insurance Regulation, said via email that the agency is in touch with insurers to aid the recovery and will work closely with state leaders "to address any market challenges and ensure consumer protection."

Florida's insurance issues could affect the rest of the nation soon. Said Meskin: "This is a nationwide issue already."