A forensic image, otherwise known as a “mirror image” will “replicate bit for bit sector for sector, all allocated and unallocated space, including slack space, on a computer hard drive.” A mirror image “contains all the information in the computer, including embedded, residual, and deleted data.” [Citations Omitted].

While this type of examination may sound innocuous to some, please consider the following analogy. Imagine a minor fender bender in which one party sues the other alleging neck pain caused by the accident. The defendant would likely seek to have the plaintiff examined by a physician to determine whether the plaintiff was indeed injured. This defendant doesn’t just want an examination of the plaintiff’s neck, however, this defendant wants a full body molecular scan that would meticulously scrutinize every cell in the plaintiff’s body. This would involve not only analysis of the plaintiff’s DNA, but also an examination of the plaintiff’s entire medical history and a full download of the plaintiff’s thoughts, memories, fantasies, and mental impressions. This examination would channel deep into repressed childhood memories, lost love and heartbreak, religious and ideological beliefs, and past indiscretions, including those that have long been forgotten.

This may sound invasive because it is. A full mirror image of a computer system would not only reveal information that may be relative to litigation, but could also reveal video games, music, movies, photographs, websites, and more. That half-written self-memoir, unfinished game of solitaire, spam email messages, Vanilla Ice discography, inappropriate websites, off-color jokes, including the ones thought to have been deleted, could turn up in a full forensic examination of a computer system. Even more serious, it could reveal privileged information such as attorney-client privileged communications.

Though this type examination is highly intrusive, the Wynmoor court held that it could not be compelled unless the requesting party shows “good cause.” The court must also consider, “whether the burden or expense … outweighs the likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake ... and the importance of the proposed discovery in resolving the issues.”

In Wynmoor, the court found, among other things, that the plaintiff did not respond to discovery requests or object to them in a timely manner, did not respond at all to requests to produce electronic information, and had an increase in shredding hard copy paper documents in the recent months. Under those circumstances, the court ordered a forensic examination. The only saving grace for the association was that the court employed a previously used protocol to alleviate the invasive nature of the forensic examination:

Mindful of the potential intrusiveness of a compelling a forensic examination, the Court will employ a collection and review protocol as outlined in Bank of Mongolia. The Court is aware that Plaintiffs are non-profit and acknowledges that this procedure is likely to be costly. Therefore, the Court sets forth the following procedure:

1. An independent computer expert shall be appointed by the Court and shall mirror image Plaintiffs' computer system. (To the extent it is possible, the independent expert shall conduct his examination in a manner that minimizes the disruption to the operation of Plaintiffs' business.)

2. The parties have up through and including March 12, 2012, to meet and confer regarding their designation of an independent computer expert. If the parties cannot agree, on or before March 15, 2012, each party shall submit its recommendation to the Court, and the Court will select the expert.

3. The appointed expert shall serve as an Officer of the Court. Thus, to the extent that this computer expert has direct or indirect access to information protected by attorney-client privilege, such disclosure will not result in any waiver of the Plaintiffs' privilege.

4. The independent expert shall sign a confidentiality order. Additionally, the expert shall be allowed to hire other outside support if necessary in order to mirror image the Plaintiffs' computer system. Any outside support shall be required to sign the same confidentiality order.

5. The expert shall mirror image the Plaintiffs' computer system.

6. The Defendant shall provide a list of search terms to the Court to identify responsive documents to Defendant's document requests on or before March 15, 2012. After Defendant has submitted the search terms to the Court, Plaintiffs shall have 5 days to submit their objections to the Court regarding any of the search terms, which the court will rule upon. The Court will provide the search terms to the independent expert.

7. Once the expert has mirror imaged the Plaintiffs' computer system, the expert shall search the mirror image results using the search terms. The results of the search terms and an electronic copy of all responsive documents shall be provided to the Plaintiffs and to the Court.

8. The Plaintiffs shall review the search term results provided by the independent expert and identify all responsive documents. The Plaintiffs shall either produce all responsive documents to the Defendant or identify those responsive documents not produced on a privilege log to the Defendant within 20 days of the date that the Plaintiffs receive the search term results from the independent expert. Any privilege log produced shall comply strictly with the Local Rules for the Southern District of Florida.

9. Defendant shall pay for all fees and costs of hiring the independent expert at this time. However, if at a later time there is evidence of the Plaintiffs improper deletion of electronic documents or any other associated improper conduct, the Court will revisit this issue and consider charging the Plaintiffs for the fees and costs of the independent expert or imposing the fees and costs on the parties in a duly appropriate apportioned manner.

10. The independent expert shall provide a signed affidavit detailing the steps he or she took in mirror imaging the Plaintiffs' computer system and searching the mirror image for the search terms within 5 days of providing the Plaintiffs and the Court with the results of the search for search terms in the mirror image.

In addition to being highly intrusive, a forensic examination can be quite costly. Most courts have the authority to allocate the costs between the parties as justice requires. The best approach to electronic discovery requests is still a proper response or objection to the request. If the court compels a forensic examination of your computer system, it could reveal more than you think.

An affirmative defense must be stricken when the defense comprises no more than bare-bones, conclusory allegations. [Citations Omitted]. A defense that simply points out a defect or lack of evidence in the plaintiff's case is not an affirmative defense. [Citation Omitted].

The Court went through each of the affirmative defenses that were pled by the insurance company. Many of the insurance company’s defenses related to the insurance policy itself. With regard to these policy defenses, the Court held that there must be some particularity that would give the condominium association notice of what the defense was about.

For example, one of the insurance company’s defenses was that its liability was limited “by the terms and conditions of the policy, including all exclusions, limitations, definitions and deductible provisions contained therein.” The Court held that this was so broad as to encompass the entire policy, and the association could not know which parts of the policy were being called into play. In two other defenses, the insurance company alleged that the association had not complied with the conditions of the policy. The Court held that the insurance company needed to identify which conditions in particular it was alleging non-compliance with so again, the association would know specifically what policy provisions to look at. Lastly, when the insurance company alleged “Concealment, Misrepresentation or Fraud,” the Court held that it must identify specifically how the concealment, misrepresentation, or fraud occurred.

The Court also held that the insurance company’s defenses that identified specific policy provisions were sufficient.

Petitioner also moves to strike the Sixth, Seventh, Eighth, Ninth, and Eleventh Affirmative Defenses. In each of these defenses, Aspen states that the insurance contract excludes some or all of the damages claimed by Petitioner. In each such defense, Aspen has included the particular policy language that pertains to that defense. For example, the Sixth Affirmative Defense lists the wear and tear exclusion, the Seventh Affirmative Defense lists the neglect exclusion, and so on. . . . . These defenses do give Petitioner sufficient notice, as particular contract provisions are identified in each defense. The “facts” that are alleged is the language of the particular insurance contract provision.

In summary, if the insurance company wants to use policy provisions as a defense, it needs to point out specific provisions so that the association can understand what the insurance company alleges.

The loss assessment coverage provision of § 627.714 sets forth a few requirements:

• Policy must include at least $2,000 worth of coverage
• The coverage amount is in excess of all other coverage
• Deductible can be no more than $250
• The deductible will not apply if another one was already applied to the unit owner for the same loss
• Coverage applies to all assessments made related to a particular loss
• Loss must be to property owned by the community as a whole
• Loss must be of the type covered by the unit owner’s homeowner policy

As long as the loss assessment coverage meets these minimum statutory requirements, it may include other terms and conditions. For example, as discussed in Loss Assessment Coverage and the “Master Deductible” Clause, depending on the policy written, this coverage may not apply to assessments made by associations to cover its own deductible on the association’s policy. Be sure to read each policy to determine what each policy’s loss assessment provisions cover.

In Michnowicz v. Hines, No. C-110048, 2012 WL 601263 (Ohio App. Feb. 24, 2012), the owner of a lower unit sued his neighbor above him after water leaked from a broken pipe in the upstairs unit into the lower unit. At trial it was established that the upstairs pipe was improperly installed, but also that the improper installation was hidden inside a vanity and undiscoverable without breaking open the sealed vanity. The parties each moved for a directed verdict at the close of evidence, and the court granted the downstairs owner’s motion on the basis that he had proven that (1) the pipe was in the exclusive control of the top unit owner, (2) the owner had a duty to maintain the pipe, (3) the pipe broke, and (4) water flowed down into the lower unit causing damage.

The upstairs neighbor appealed the directed verdict, and the appellate court analyzed the trial court’s verdict to determine that it had applied an absolute liability standard, holding the owner of the top unit liable for damage even if he had acted reasonably under the circumstances. The court looked to the Ohio Condominium Act and the declaration of condominium for the association to determine whether unit owners were strictly and absolutely liable for damage to others’ property. The Ohio Condominium Act provides that:

[the] unit owner or any person entitled to occupy a unit is liable in damages in a civil action for harm caused to any person or to the unit owners association by that individual's failure to comply with any lawful provision of the condominium instruments.

The court held that the “failure to comply” requirement meant that there must be some level of improper conduct on the part of the upstairs neighbor before he could be held liable for damage caused by a leak originating from his unit.

Upon our review, we hold that the trial court erred by interpreting Article XI, Section 2 and R.C. 5311.23(A) to impose on Hines absolute liability for any damages to Michnowicz caused by the failure of a component in Hines's unit that Hines had the responsibility to maintain. Article XI, Section 2 merely sets forth the responsibility of the owner to maintain the unit and its components, but it does not define the scope of the duty to maintain.

And R.C. 5311.23(A) simply subjects unit owners to statutory liability to others for damages caused by the failure to comply with a provision of the association's instruments. The trial court effectively eliminated this element of proximate cause. Further, R.C. 5311.23(A) does not define a standard of care for the underlying violation of a provision, and we do not believe the General Assembly intended it to.

The appellate court held that after removing the incorrect absolute liability standard applied by the trial court, a directed verdict was not warranted and the judge should not have taken the issue away from the jury.

So what level of culpability is required before liability may be imposed on one owner for damage caused to a neighboring unit owner’s property? The court did not state what level was required for Ohio, and will most likely vary in different jurisdictions, so be sure to contact competent legal counsel when dealing with similar issues.

(27) “Unit” means a part of the condominium property which is subject to exclusive ownership. A unit may be in improvements, land, or land and improvements together, as specified in the declaration.

(8) “Common elements” means the portions of the condominium property not included in the units.

(19) “Limited common elements” means those common elements which are reserved for the use of a certain unit or units to the exclusion of all other units, as specified in the declaration.

Although limited common elements are exclusive in ownership, in Cedar Cove Efficiency Condo. Ass'n, Inc. v. Cedar Cove Properties, Inc., 558 So. 2d 475, 479-80 (Fla. 1st DCA 1990), a Florida appellate court held that limited common elements such as balconies and patios may fall under the responsibility of the association and not the unit owners. In Cedar Cove, after a dispute developed on whether an association could levy an assessment over exterior balconies and doors, in identifying the responsibilities of the association and unit owners the court stated:

The Act's definition of “limited common elements” implies they are a subset of “common elements” and therefore a “common expense” properly within the scope of the association's authority. Sections 6.1 and 6.2 of the declaration of condominium authorize the association to levy an assessment to maintain and repair all unit exteriors and common elements. Even if the balconies and closet doors are not considered “common elements”, it is difficult to refute their classification as part of the unit exterior. The balconies and doors fall within the scope of the association's broad authority to maintain condominium exteriors.

Even though limited common elements such as balconies and patios may be considered the responsibility of the association and not the unit, other movable personal property that is placed or installed on limited common elements generally remains the property and responsibility of individual unit owners. After a Florida governmental agency had declared otherwise, another Florida appellate court set the record straight in Costa Del Sol Ass'n, Inc. v. State, Dept. of Bus. & Prof'l Regulation, Div. of Florida Land Sales, Condominiums, & Mobile Homes, 987 So. 2d 734, 736 (Fla. 3d DCA 2008):

In the total absence of any cognizable legal basis for the inside-and-outside distinction drawn by the Division, which would as well apply to a barbeque or even a lounge chair placed on the patio, it is self-evident that this ruling, that the owner of all the sticks or incidents of ownership which make up the proverbial bundle of property rights is not its owner and that something or someone else is, cannot stand.

The court went on to find that the association would not even have an insurable interest in these items of personal property that a unit owner individually purchases and retains exclusive rights over, even if they are placed in a limited common element. As an individual unit’s property, the unit owner would be responsible for insuring.

Theses cases and statutes represent Florida law, and the law often varies in different states and jurisdictions, so please contact competent legal counsel for assistance with any analysis of insurance covering limited common elements.

The respective rights and responsibilities of unit owners and condominium associations are governed by the [New Jersey] Condominium Act [], the master deed creating the condominium, and the condominium association's by-laws. … The determination whether [the unit owner] may maintain an action against [the association] and [the property manager] for the damage to its unit caused by their alleged negligent maintenance of the common elements turns on the sections of the [association] by-laws regarding the parties' obligations to obtain insurance and precluding subrogation actions.

The association’s by-laws required the association to carry insurance over the building and required the unit owners to carry insurance over their personal property. All policies were required to waive subrogation rights, cutting off the rights of the insurance companies to pursue action against the real party responsible for damage. The court concluded that these provisions demonstrated that the condominium by-laws were drafted with the intent of preventing unit owners and the association from suing each other over damage to their respective properties.

Similarly, we conclude that the [association] by-laws, which require [the association] to obtain insurance on the condominium property and the unit owners to obtain property damage coverage for their own personal property, and require both policies to include waiver of subrogation provisions, contemplate that there will be no litigation between unit owners and the association based on alleged damage to the condominium units or the personal property contained in them. (Emphasis added).

While state statutes will likely apply to all condominiums in a given state, condominium deeds, declarations of condominium, and condominium by-laws may vary for each respective property, and require individual analysis to determine if the outcome in the case above would result at a different location.

As an initial matter, the Court observes that matching of replacement building components to undamaged original building components can logically be arrived at by two means. The first is by installing replacement components that are “of like kind and quality” as the original components; uniformity is thus achieved without the replacement of undamaged original components. If that is not possible because, for example, components “of like kind and quality” are unavailable, a second option to achieve matching is to replace all like components (i.e., windows), both damaged and undamaged, so that any damaged components that are replaced are identical to the undamaged ones.

In opposition to the matching argument, the insurance company cited Ocean View and Strasser v. Nationwide Mut. Ins. Co., 09-60314-CIV, 2010 WL 667945 (S.D. Fla. Feb. 22, 2010), to allege that the policy did not cover “matching” through the second method discussed by Judge Altonaga.

While the reasoning of Strasser and Ocean View is persuasive, the cases are not directly applicable here for two reasons. First, in Strasser, “what constituted a direct physical loss under the policy . . . [was] not at issue.” [citing Strasser]. Similarly, the court in Ocean View Towers did not specifically address whether the policy’s coverage included “direct physical loss or damage” to the building as a whole, likely because the plaintiff did not raise the argument. [citing Ocean View]. In this case, however, Island maintains that by the policy’s own terms, the entire building or structure is “covered property,” and thus, damage to the building not only includes physical damage to its individual components, but also physical loss of the building’s original condition due to mismatched replacement components. … In sum, regardless of which method QBE used to compensate Island for its loss, Island is entitled to matching. Notably QBE fails to address this argument in its Reply. … [Emphasis added].

The Court looked to the payment provision in the policy that requires the insurance company to either “pay the value of lost or damaged property” under paragraph (a)(1) or “replace the property with property of like kind and quality” under Paragraph (a)(4).

Thus, although QBE states that it must “pay” as opposed to “replace or repair” the damage to Island’s property, QBE appears to agree that matching via the first method is appropriate, i.e., damaged items must be replaced with property of “like kind and quality,” which is language belonging to Paragraph (a)(4). … Indeed, if QBE opted to compensate Island under Paragraph (a)(4), money damages for breaching the insurance contract could simply contemplate what Island would have been entitled to: matching building components. [Emphasis added].

Essentially, the Court held that under the terms of the policy, the entire building was covered in its pre-loss condition. The building had matching components in its pre-loss condition, and the policy covers the cost to repair damage to bring the building back to that pre-loss condition, matching components and all. This makes perfect sense under all theories of indemnity, because the property should be brought back to its original pre-loss condition, not a patchwork of mismatched components.

In support of its Motion for Reconsideration, QBE cites numerous opinions from the Southern District of Florida in cases involving this very same Defendant-none of which were cited by QBE in its Response to the Corrected Motion for Summary Judgment. It boggles the mind to consider how QBE could not be aware of opinions in its own cases from the same federal district court and yet not cite those cases until after receiving an adverse ruling from the court.
…
QBE cites no decision holding that the insured must submit a supplemental claim before bringing suit where, as here, the insured alleges breach of contract and has not sought an appraisal or declaratory relief as to coverage under the policy.
…
QBE also cannot demonstrate any “manifest error” because, in this case, the Court simply followed the plain language of the policy. The Court reached the conclusion that Ocean View complied with its post-loss duties, despite the fact that Ocean View never submitted a supplemental claim before filing suit, because nothing in the policy's plain language required Ocean View to do anything more than provide the initial notification of the “loss,” which it unquestionably did in the days after Hurricane Wilma. That QBE failed to fully exercise its investigatory rights cannot be blamed on Ocean View or this Court. Although QBE argues that “the Court's order essentially abolishes the concept of a supplemental claim,” see Mot. at 7, this is hyperbole. The Court followed the law and interpreted the unambiguous policy terms according to their plain meaning. If QBE is unsatisfied with this result, it can only blame itself. If QBE wanted to ensure a contrary result, it should have included a provision in its policies expressly requiring insureds to submit supplemental claims as a prerequisite to bringing suit. It failed to do so, and this Court will not rewrite the policy for QBE after the fact.

As I stated last week, Judge Scola’s reading of the insurance policy sends a strong message to insurance companies to get their investigations right the first time. If they don’t, they can’t blame it on the insured, the court, or anyone else for that matter. The blame lies squarely on an insurance company that fails to fully exercise its investigatory rights.

The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it. If this unpublished [opinion] is followed, federal courts will not award the full amount of replacement cost benefits until the insured actually does the work. This seems like a pretty illogical result from the policyholders view, as a replacement cost policy should pay for replacement of the property to a new condition. Where an insurer underpays a loss and refuses to acknowledge a proper amount of value for replacement, how are policyholders supposed to do the replacement?

Unfortunately for consumers -- especially condominium associations, last week, Florida’s Fourth District Court of Appeal expressly followed the logic and reasoning of Buckley Towers in Florida Ins. Guar. Ass’n. v. Somerset Homeowners Ass’n, Inc., 4D10-4157, 2011 WL 6373028 (Fla. 4th DCA Dec. 21, 2011). In Somerset, an appraisal panel entered an appraisal award in the amount of $12,581,471.43 for RCV and $11,630,208.55 for ACV. When the insurer failed to pay either ACV or RCV, the association sought confirmation of the award and a judgment was entered for the RCV award. The insurer appealed on several grounds, but the appellate court reversed only on the basis that the judgment was limited to ACV. The decision was based on policy language that required the association to actually perform repairs as soon as reasonably possible after the loss before it would be entitled to replacement cost benefits.

While this decision is ultimately anti-consumer, there is some good news because the appellate court rejected several of the insurer’s arguments, including those that the insurer was entitled to discovery regarding the appraisal, that the award should have been vacated, that “matching” was legally inapplicable, that an award of impact windows was improper, that the appraiser for the association made improper submissions to the umpire, that the appraisal award included items not previously adjusted, and that the insurer was entitled to challenge coverage. Also, this decision does not prevent recovery of the difference between ACV and RCV from being recovered once the repairs are completed, and does not address homeowner’s policies or Florida Statute § 627.7011 that legislates replacement cost coverage for homeowners.

If the economic research holds true, insurance consumers will react less to losing these coverages than they would to premium increases. It appears Citizens is trying to adjust its bottom line while avoiding the recent reaction consumers had to Citizens’ 2000% rate hike. Regardless of whether these price increases come in through the front door as premium hikes or through the back door as reduced coverage, they will have a profound impact on all Florida policyholders, especially for those carrying larger policies that cover condominiums and commercial properties.

To avoid this sneaky price increase, policyholders need to stay vigilant in the fight for proper coverage. Consumer advocacy groups such as Policyholders of Florida provide information and resources for protecting insurance consumers’ rights. Education and standardization may also help raise awareness over broad policy changes like those proposed by Citizens. Research has shown that consumers react differently to changes once they have become accustomed to a particular size or quantity of product. As Brush concluded his article, “don't expect to see 11 eggs in a carton anytime soon.” As insurance consumers begin to expect certain coverages in their policies, it won’t be as easy for carriers to remove them from policies.

A condominium is “an estate in real property” that “typically involves an apartment building or other structure consisting of two or more separate apartments or units,” i.e., “horizontal property” or multi-story “stacked units.” … In Ridgely Condominium Ass'n v. Smyrnioudis, 343 Md. 357, 681 A.2d 494 (1996), we provided an overview of the condominium form of ownership, explicating that an owner has a “hybrid property interest”:

A condominium is a “communal form of estate in property consisting of individually owned units which are supported by collectively held facilities and areas.” …

The term condominium may be defined generally as a system for providing separate ownership of individual units in multiple-unit developments. In addition to the interest acquired in a particular apartment, each unit owner also is a tenant in common in the underlying fee and in the spaces and building parts used in common by all the unit owners.

… A condominium owner, therefore, holds a hybrid property interest consisting of an exclusive ownership of a particular unit or apartment and a tenancy in common with the other co-owners in the common elements.

… The owner, therefore, possesses two distinct, separate property interests. She or he owns a fee interest in her or his individual property, comprising the exclusive right to use and occupy it. … “All a condominium is, is a vertical, rather than horizontal, subdivision of one of the incidents of real property, the airspace.... [T]he condominium statutes did not create a new real property. They simply created another way to own airspace....”

The owner also possesses an undivided percentage interest, as a tenant in common, with the other owners, in the condominium's common elements, which,

may include the land, foundations, columns, supports, walls, roofs, halls, lobbies, stairs, entrances, recreational areas, parking lots, gardens and installations for utilities. The common interest represents the residual rights that the unit owners have in the property. The unit owners collectively own, as tenants in common, the entire condominium property, minus the airspaces consisting of the units. The rights to individual units are, in a sense, carved out of the tenancy in common.

… Common elements can be further subdivided into limited common elements, which are allocated for the exclusive use of one or more, but fewer than all, owners, such as, for example, designated parking spaces, balconies, terraces or patios, as well as general common elements, such as grounds and roads.

The court reviewed the Maryland statutes and history in light of the unit owners’ argument that the statute only required a unit owner to be responsible for maintenance but not repairs. The court held that such an interpretation would create an illogical result.

The Owners' interpretation of the statute [] would lead to illogical and absurd results by giving the council owners greater responsibility for losses within a unit than a landlord has on the property of a tenant, when the landlord owns the space, while the council of owners does not. … Additionally, the council of owners would be responsible for repairing or replacing property in a unit within which the council has no right to enter to make inspections or perform preventative maintenance. … As we have noted on many prior occasions, the General Assembly reasonably could not have intended such an illogical result. …

We conclude that the Maryland Condominium Act does not require the council of owners to repair or replace property of an owner in an individual condominium unit after a casualty loss. Thus, we affirm the judgments of the Circuit Court for Montgomery County and the Circuit Court for Prince George's County.

The court held as many have done around the country, that the association is responsible for maintenance and repairs to the common elements, and that the individual unit owner is responsible for the maintenance and repairs of his or her respective units. It is important to note that this case involved damage that was restricted to the individual units. More complex issues arise when the same property damage bridges across both individual and association ownership interests. The results may also vary depending on local laws, so contact competent counsel regarding these types of issues for your jurisdiction.

When dealing with large condominium losses, one factor that can take significant time is the investigation of the loss by the insurance company. This is because the insurance company may want to inspect a large property, review boxes full of association records and documents, and interview association board members. Depending on the circumstances, this process may span months or even years. So what is an association to do when a property damage claim is still under investigation but the statute of limitations is running out? In Yacht Club on the Intracoastal Condo. Ass'n, Inc. v. Lexington Ins. Co., 10-81397-CV, 2011 WL 5223127 (S.D. Fla. Nov. 2, 2011), the association went ahead and file suit.

In Yacht Club, the condominium association first notified its insurance company of Hurricane Wilma damage approximately four years and seven months after the loss. The insurance company requested a proof of loss, examination under oath, and various documents. Faced with a potential statute of limitations problem at the five-year anniversary of the loss, the association filed suit for breach of contract before the insurance company’s investigation was complete. The court held that under the specific facts of that case, the lawsuit was not ripe when it was filed because the insurance company could not breach the contract until after it had investigated and denied the claim. The court dismissed the case without prejudice so it could potentially be filed again when and if it became ripe.

In the past, courts have either dismissed an early-filed lawsuit or stayed the litigation so that the insurance company could complete its investigation before reaching a determination on the loss. See El-Ad Enclave at Miramar Condo. Ass'n, Inc. v. Mt. Hawley Ins. Co., 752 F.Supp.2d 1282, 1287 (S.D. Fla. 2010). What is different about Yacht Club, is that after the association filed suit, the insurance company abandoned its efforts to investigate the claim. Over a year went by with significant litigation before the court ultimately dismissed the case, yet the court found that there would be no hardship to the parties if the case was dismissed and re-filed later. Under the court’s logic, and under the facts of that particular case, even though the insurance claim was not brought until close to five years after the loss occurred, the claim would not be barred by the applicable statute of limitations even if the insurance company denied the claim after a lengthy investigation, because the denial would start the countdown clock ticking, not the hurricane itself.

It takes some good analysis to determine when a claim first becomes ripe and when that countdown clock will run out. If you have property damage, be sure to take action early to give yourself plenty of time, and seek professional help to ensure timeliness and accuracy for your claim.

(1) restricting a member or member's guest from parking more than 10 vehicles in the common area at any given time, without board permission; (2) prohibiting the use of helicopters and light aircraft in Jones Ranch except for emergencies; (3) requiring a member desiring to host a gathering attended at any one time by more than 100 persons to submit an application to the HOA board 45 days in advance the event; and (4) permitting the HOA to levy reimbursement assessments to be enforced by lien with power of sale, and increasing the upper limit on fines that can be levied against a member from $50 to $25,000.

Dr. Degnan owned a secluded residence on which he regularly entertained large groups with lavish parties. One such Halloween party invitation included the following language:

DR DEGNANS HALLOWEEN PARTY. THIS IS A HALLOWEEN/PAJAMA PARTY, SEXY COSTUMES ARE ENCOURAGED FOR WOMEN.... Gentlemen will be expected to bring at least two ladies or you will not get in-NO EXCEPTIONS.

Dr. Degnan’s parties were known to include up to as many as 500 guests “in various stages of dress and undress,” loud music, public drinking, parking that obstructed traffic, and widespread littering. On at least one occasion, a private helicopter landed in Dr. Degnan’s yard to deliver guests. After several of such parties, the homeowner’s association filed suit to enforce its restrictions against Dr. Degnan. The court ruled that the first three of the four provisions cited above were enforceable, but the liens and fines of the fourth provision were excessive.

As a result of this litigation, Dr. Degnan was required to submit an application to the HOA board for large-scale gatherings of more than 100 people. The application required information such as the number of guests, date and time of the party, security measures, and cleanup arrangements. Dr. Degnan was also required to submit a deposit to cover HOA expenses that may be incurred as a result of the parties and to obtain insurance to cover the HOA for any liabilities that might arise from his parties.

If you are planning a party, make sure it falls in line with your association’s rules. With that caveat, be sure to have a good time.

Merlin Law Group wishes you a safe and happy Halloween!

Mr. Grife sued the insurance company, but the lawsuit was dismissed early on when the court found that the loss assessment provision in his policy did not cover assessments based on an insurance deductible. The loss assessment provision of his policy included what the court called a “Master Deductible” clause. Specifically, the policy provided that, “Any reduction or elimination of payments for losses because of any deductible applying to the insurance coverage of the association of building owners collectively is not covered under this protection.” The court determined that this language limited loss assessment coverage to losses under the association master policy that exceeded the master policy’s coverage limits. Procedurally, the court granted the insurance company’s motion for judgment on the pleadings. Mr. Grife appealed, and the Eleventh Circuit Court of Appeals affirmed the lower court’s ruling.

While a “Master Deductible” clause was included in Mr. Grife’s unit owner policy, it may not be found in every condominium unit owner’s policy. If you or any of the unit owners in your association have questions regarding whether loss assessment coverage will apply to your circumstances, please contact competent insurance professionals for an analysis of your specific coverage.

We will not pay for loss or damage caused directly or indirectly by any of the following. [ ... ]
(4) Earth sinking (other than sinkhole collapse), rising, or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water underlying the ground surface.

To determine what an ordinary reader would understand this policy language to mean, the court took a fine-toothed comb to the grammatical structure of this exclusion.

[S]ubparagraph (4) … is somewhat of an ungrammatical maze. It begins by straighforwardly listing three verbs (technically verb-like gerunds)—“sinking,” “rising,” and “shifting”—each of which describes ways in which earth can move. Somewhat jarringly, the sentence then interposes a definitional term—“including”—without clearly indicating what term or terms are being defined. It proceeds to define one or more of the previous verbs with a noun phrase —“soil conditions.” Because the paragraph later defines the noun phrase “soil conditions” to itself comprise “contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water underlying the ground surface,” an ordinary insured attempting to understand the paragraph would simply substitute the definitional portion of the paragraph's second sentence for the term “soil conditions” in the first sentence, yielding a provision that purports to exclude coverage for “[e]arth sinking ..., rising, or shifting including contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water underlying the ground surface....”

This is somewhat of an improvement, although the object being modified by “including” is still unclear. An ordinary insured might then conclude that a given unit of earth can only move in a few different dimensions: it can “sink” or “rise” relative to its neighboring units, it can “shift” either laterally or forward and backward compared to its neighbors, or it can “expand” or “contract” itself. The remaining terms —“freezing, thawing, improperly compacted soils and the action of [subsurface] water”—describe mechanisms that would cause the earth to move, not movements themselves. Finally, the terms “settling, cracking or other disarrangement of foundations” describe damage that might result when the earth moves as described.

The court concluded that an ordinary person would reasonably understand this policy provision to exclude coverage for damage, when that damage results from movement of the earth caused by “freezing, thawing, erosion, improperly compacted soil, or sub-surface water.” In essence, except for improperly compacted soil, the court removed all man-made causes of earth movement from this exclusion. The court looked to the facts of the case and determined that man-made vibrations from nearby construction may have caused the condominium’s damage and denied the insurance company’s motion for summary judgment.

While some states like Colorado use the reasonable expectations doctrine, many other states take a plain meaning approach that lets the terms of the insurance policy control, regardless of the understanding or expectation of the parties. When analyzing the plain meaning of the terms of a policy, courts can also look to the grammatical construction to determine what policy provisions mean. See Farmers Ins. Exch. v. Versaw, 99 P.3d 796, 797 (Utah 2004); Rich v. Principal Life Ins. Co., 875 N.E.2d 1082, 1091 (Ill. 2007).

The grammatical analysis of the policy in the High St. Lofts case could also be used in jurisdictions that employ the plain meaning approach. The rules of grammar apply to what the terms actually mean as well as to what a reasonable person would expect them to mean. As illustrated by the analysis of this case, the interpretation of insurance policies is not always easy. If you have questions regarding your policy or interpretation, please contact competent legal counsel.

In Grandrimo, a unit owner suffered property damage from several instances of water intrusion in her unit. In some of the instances she was able to identify the source of the water, but in others she was not. After one of the later incidents, her individual property insurer stood by ready to pay to repair the damage. She asked the insurer to hold off until the condominium association found the source of the water because she feared that the condition would reoccur. When the association did not find the source, she sued the association and the insurance companies, alleging several theories of negligence liability. The condominium association sought, and the court granted, summary judgment on each of these theories.

1. Insurance: The unit owner alleged that the condominium association had failed to properly procure insurance to cover losses caused by common elements. The condominium association countered that under statute and the condominium bylaws, it was only required to purchase insurance covering damage to the common elements, not to individual units. The court granted summary judgment to the association on grounds that it had procured adequate insurance.
2. Inspect and Maintain: The unit owner alleged the condominium association breached its duty to inspect and maintain common elements to protect her unit. The association countered with the declaration of condominium which stated that the association was not liable for damage to individual units caused by other units or rainwater. Since the plaintiff could not identify the source of the water intrusion into her unit, the court granted summary judgment in favor of the association on this theory.
3. Expert: The unit owner also alleged that the association failed to obtain an expert to analyze the air quality when she complained about mold from the water intrusion. The court granted summary judgment for the association when it found that the declaration of condominium expressly stated that the association had no such duty to perform invasive testing and could not be held liable for the unit owner’s failure to do so.
4. Adjoining Landowner: The unit owner also claimed that the association was an adjoining landowner and owed her a duty to not interfere with the use and enjoyment of her property. The court granted summary judgment for the association because there was an absence of facts to support the allegation that the water intrusion was the fault of the association.

The resolution of this case relies heavily on the declaration of condominium and condominium bylaws, which vary greatly with each condominium. The outcome could have been radically different as well, if the unit owner had conclusively determined the cause of the water intrusion into her unit.

Applying this legal standard to Senate Bill 408, the old statute of limitations applies to insurance policies executed on or before May 16, 2011. The new statute of limitations applies to insurance policies executed on or after May 17, 2011.

Recently, the Southern District of Florida was faced with this statute of limitations issue in View West Condo. Ass'n, Inc. v. Aspen Specialty Ins. Co., No. 11-20423-CIV, 2011 WL 3704782 (S.D. Fla. Aug. 23, 2011). In View West, the plaintiff’s cause of action involved property damage from Hurricanes Katrina and Wilma. The plaintiff filed its action for Katrina damages more than five years after the date of the storm. Instead of looking to the statute that applied when the policy was issued as the Florida Supreme Court requires, the Court looked to the statute that applied at the time the cause of action was filed and dismissed the claim with prejudice. The Court stated:

After passage of SB 408, the limitations period unequivocally runs from the date of the loss. Here, the date of the loss was August 25, 2005. Plaintiff filed this lawsuit on October 23, 2010, and waited until July 11, 2011 to amend its complaint to add a claim for breach of property insurance contract based upon Hurricane Katrina damages. Because Plaintiff brought its Hurricane Katrina Claim more than five years after the date of the loss, the claim is barred by the statute of limitations.

This analysis runs contrary to the Florida Supreme Court’s rulings in Menendez and Devon Neighborhood.

From the opinion, the footnotes, and the memoranda filed in the case, it appears that statutory retroactivity and equitable tolling of the statute of limitations were considered by the View West parties and Court, but neither party cited the legal precedent recently reaffirmed by the Florida Supreme Court. Unfortunately, this opinion will likely lead to more confusion on the issue.

In Villa Los Alamos, the condominium association hired a local contractor to remove the popcorn ceiling in one of its buildings. When the contractor started, it disturbed asbestos in the ceiling tiles, spreading asbestos fibers throughout the building. The local Air Quality Management District cited the contractor, removed it from the project, and ordered the association to perform a comprehensive abatement of the building. Abatement cost the association approximately $650,000. The association sued the contractor, but also put in a claim with its property insurer, State Farm. The association won its lawsuit against the contractor, but the contractor was insolvent and the contractor’s insurer relied on the pollution exclusion in the contractor’s liability policy to deny coverage. When the association’s insurance company denied coverage on the association’s property damage claim, the association sued in an attempt to recover its cleanup costs.

The association argued that even though the MacKinnon standard technically only applied to third-party liability insurance policies, it should apply to first-party property insurance policies as well. The association wanted the narrower reading of the exclusion that MacKinnon provided so their claim for asbestos cleanup would be covered. Before applying third-party doctrines to a first-party case, the court reiterated its earlier distinctions between first and third party insurance saying,

[T]he right to coverage in the third party liability insurance context draws on traditional tort concepts of fault, proximate cause and duty. This liability analysis differs substantially from the coverage analysis in the property insurance context, which draws on the relationship between perils that are either covered or excluded in the contract. In liability insurance, by insuring for personal liability, and agreeing to cover the insured for his own negligence, the insurer agrees to cover the insured for a broader spectrum of risks.

The court then looked to the plain meaning of the exclusion, the expectation of the insured, the similarity of the exclusions, and the history of the exclusion before concluding that,

[A] reasonable insured would expect both exclusions to apply to environmental pollution. This conclusion is bolstered by the common history and the fact that the all peril property policies likewise broadly cover losses unless specifically excluded or limited.

Even thought the court adopted the narrower view of the pollution exclusion, this interpretation did not save the association’s claim for asbestos cleanup. The court examined the facts and found that the asbestos fell within the “environmental pollution” definition and affirmed judgment for State Farm. The association argued that the asbestos release was negligent rather than intentional, that it was contained within the building and did not escape outside, and that it only happened once. The court held that these arguments were not convincing enough to bring the association’s asbestos release out of the meaning of a traditional “environmental pollution.”

Under the specific facts of this case, it also appears that the association knew about the asbestos and hired a contractor that may not have been properly licensed to take the proper precautions for asbestos. California, in particular, has strict licensing guidelines regarding asbestos.

If you are planning remodeling or repairs to your condominium buildings, be sure to check with a licensed professional regarding the possibility of asbestos, because if there is a problem like the one in Villa Los Alamos, it may not be covered under your insurance policy.

This lawsuit raises the question of what duty of security a condominium association owes to its unit owners. In another South Florida case, Vazquez v. Lago Grande Homeowners Ass’n, 900 So. 2d 587 (Fla. 3d DCA 2005), the Court held that because a condominium association had marketed safety and security as selling points in its advertising materials, the association had a duty to provide that safety and security. In Lago Grande, not only did the condominium association advertise safety, but it also collected a fee for security, built a security wall, set up security lighting, put in a manned gatehouse, and developed post orders for security staff. The Court held that the condominium association’s duties of security arose from its particular undertakings to keep its residents safe. While it is not entirely dispositive of Mr. Ogunleye’s case, the Mondrian South Beach Residences advertises a 24-hour security service as one of its amenities.

The next question is where does condominium insurance fit into this scenario? Most associations purchase insurance to protect it from its own negligence -- potentially covering the first two counts of negligence and negligent supervision against the association. However, it is generally against public policy to avoid responsibility for ones own intentional torts by contracting around such responsibility through insurance. In some instances, though, an employer may be liable for an employee’s torts if those torts were committed within the course and scope of the employment. See Prison Health Services, Inc. v. Florida Ass’n of Counties Trust, 858 So. 2d 1119, 1121 (Fla. 2d DCA 2003). In Mr. Ogunleye’s suit against the association, a key finding on the third count of vicarious liability will likely be whether the alleged torts of the intruding employee were committed within the course and scope of his employment with the Mondrian South Beach Residences. Insurance coverage for vicarious liability may only be available if the employee was acting within the course and scope of his employment.

Condominium associations need to be certain they are providing the services they advertise, especially if they involve safety and security. As for Mr. Ogunleye and the Mondrian South Beach, that lawsuit has just begun and will only address any civil liability on the parts of the intruder and the association.

QBE argues that the existence of a disagreement regarding the valuation of the loss is a precondition to the invocation of the appraisal provision. While this Court agrees, that argument takes QBE only so far.

As QBE acknowledges, on October 19, 2010, 200 Leslie did “write to QBE to express that ‘it disagreed with QBE's position’ and to ‘demand[ ] that this dispute ... be resolved through the appraisal process ....’ ” Although 200 Leslie sent this letter after filing suit in this case, it did so before filing the Second Amended Complaint in this matter, and to date—eight months later—QBE has not responded in any way: it has not disagreed with 200 Leslie's contesting of QBE's valuation; it has not requested documents from 200 Leslie; it has not sought to conduct an examination under oath; and it has not otherwise engaged in any apparent actions indicating that it is in the process of determining its position with respect to 200 Leslie's valuation of its purported Hurricane Wilma loss. Meanwhile, 200 Leslie has indicated its willingness to comply with all of its post-loss obligations as invoked by QBE to enable QBE to determine whether it disagrees with 200 Leslie's contestation of QBE's valuation. QBE contends that the October 19, 2010, letter amounts irremediably to too little, too late and, thus, that Count II should be dismissed with prejudice. But other cases suggest that there may be more to consider.

The Court considered El-Ad Enclave at Miramar Condo. Ass’n, Inc. v. Mt. Hawley Ins. Co., 752 F. Supp. 2d 1282 (S.D. Fla. 2010), which I previously wrote about in Must an Insured "Sit" for an EUO Before Filing Suit if It Has Been Requested?. In El-Ad Enclave, the Court decided that dismissal was not appropriate because the insured had not demonstrated a “willful disregard” for policy conditions. The 200 Leslie Court continued its analysis in light of El-Ad Enclave by saying:

Considering the reasoning in Enclave, the Court concludes that 200 Leslie may have been able to remedy any shortcomings in meeting its pre-filing obligations under the policy even after it filed the lawsuit in this case. Thus, 200 Leslie's October 19, 2010, letter, which predated the filing of the Second Amended Complaint and sought to determine whether a “disagreement” existed over the valuation of 200 Leslie's alleged Hurricane Wilma loss, may have fulfilled that particular prerequisite for seeking appraisal following a sufficient period within which QBE could fairly have been expected to respond. Although QBE did not respond to the October 19, 2010, letter, QBE cannot simultaneously unilaterally preclude 200 Leslie's satisfaction of the “disagreement” prerequisite by ignoring the demand letter and use 200 Leslie's alleged failure to demonstrate a “disagreement” to bar suit permanently. All that is required under Romay is that QBE be given a reasonable opportunity to determine whether it disagrees with 200 Leslie's contestation of QBE's valuation of 200 Leslie's loss. In order to make that decision, QBE is entitled to require 200 Leslie's compliance with pre-appraisal obligations, should QBE wish to do so. At some point in time, however, a complete failure to respond to 200 Leslie's contestation of QBE's valuation and to demand compliance with pre-appraisal obligations must act as an implicit “disagreement” under the policy. Otherwise, insurers could always avoid appraisal by simply ignoring demands for appraisal. Thus, 200 Leslie's post-initial-Complaint but pre-Second-Amended-Complaint demand letter may have set the stage for the required “disagreement” under the appraisal provision. (emphasis added).

Where most courts have looked only at the language of Romay that focuses on the insured’s obligations, the Honorable Judge Robin S. Rosenbaum saw through to the other side of Romay, which focuses on the insurer’s responsibilities. Romay holds that a “disagreement” for triggering appraisal cannot be unilateral. This requires both parties to act. Romay also requires a meaningful “exchange” of information, which requires both parties to work together. As Judge Rosenbaum appropriately stated, if the insurer fails to comply with its obligations under Romay, the correct result would be to find an implicit disagreement and permit an appraisal to go forward.