Condominium Insurance Law : Condo Insurance Lawyers & Attorneys : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables & West Palm Beach

In High St. Lofts Condo. Ass'n, Inc. v. Am. Family Mut. Ins. Co., 10-CV-02484-MSK-BNB, 2011 WL 4479120 (D. Colo. Sept. 26, 2011), a Boulder condominium started cracking and sloping when the city began road construction nearby. The condominium alleged that vibrations from the local construction caused the damage to its property. The condominium filed a lawsuit against the contractor responsible for the road construction and also filed a claim with its insurance company. The insurance company claimed that “earth movement” caused the damage, and that it was excluded under the following provision in the policy:

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.

The first question I received involved the statutory language of “personal property.” Under general property law principles, tangible personal property is privately owned property that is movable. This mobility distinguishes this type of property from real property, which is for the most part, immovable. Some personal property, however, can become part of the real property when properly affixed to it. For example, one can purchase a kitchen cabinet, roll of carpet, window shutter, or can of paint from a home improvement store. At the time of sale, the law would classify those items as personal property. Once those items are properly installed onto real property, such as a condominium unit, their classification in the eyes of the law will generally change to being part of real property, or fixtures. The law of fixtures is complex and beyond the scope of this post, but if there is sufficient interest, I may address it in more detail in a later post.

I also received a question regarding air conditioning units. The question came up not as I had posed it, as to whether an air conditioning unit would be considered an appliance or electrical fixture, but rather how it would be handled in light of the statutory language that excludes items “located within the boundaries of the unit and serve only such unit.” This raises an issue over how a split system air conditioning unit that has components located both outside and inside the boundaries of a condominium unit would be handled under the statute. Setting aside the possibility of excluding an air conditioning unit as being an appliance or electrical fixture, Fla. Stat. § 718.111(11)(n) gives more guidance on the obligations of an association to repair property items that serve only one unit:

The association is not obligatedto pay for any reconstruction or repair expenses due to property loss to any improvements installed by a current or former owner of the unit or by the developer if the improvement benefits only the unit for which it was installed and is not part of the standard improvements installed by the developer on all units as part of original construction, whether or not such improvement is located within the unit. This paragraph does not relieve any party of its obligations regarding recovery due under any insurance implemented specifically for such improvements.

While it appears that based on this statutory language, an association would not be required to repair the part of an air conditioner that is outside a condominium unit, each insurance policy is different, and the facts of each claim are never the same, so please contact proper counsel for assistance with your specific facts.

Thompson was writing about Fla. Stat. § 718.111(11)(f)3, which specifically enumerates twelve items that must be excluded from a condominium master insurance policy. Fla. Stat. § 718.111(11)(f)3 states:

The coverage must exclude all personal property within the unit or limited common elements, and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and countertops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing which are located within the boundaries of the unit and serve only such unit. Such property and any insurance thereupon is the responsibility of the unit owner.

According to Thompson, remembering “The Dirty Dozen” exclusions is an easy way for condominium boards to field questions from unit owners about what is covered under the master policy. To spell out those exclusions listed in the statute, they are:

1. Personal Property
2. Floor Coverings
3. Wall Coverings
4. Ceiling Coverings
5. Electrical Fixtures
6. Appliances
7. Water Heaters
8. Water Filters
9. Built-in Cabinets
10. Countertops
11. Window Treatments
12. Window Treatment Components

Remembering this list is a great quick and “dirty” way to field questions regarding condominium insurance coverage, but associations should keep in the back of their mind that the list potentially runs deeper. Courts will use different methods to interpret the language of the statute in order to determine if an item is or is not covered. These methods are often discussed as rules of “statutory interpretation” or “statutory construction.”

For example, items expressly stated in the statute, such as water heaters and water filters, will likely always be excluded based on the “plain meaning” of the statute. What about a water softener? It is not expressly excluded, but a court may read it into the statute based on a “ejusdem generis” interpretation, which includes other items of the same class. Now what about an air conditioning unit? Is it an electrical fixture or an appliance? What about a water pump or other plumbing fixture? As items get further away from the defined list in the statute, the less likely it is that a court will find it excluded under the statute. Also, keep in mind that an insurance policy may exclude additional items from coverage.

While empty buildings, condos, apartments, and houses cause a myriad of issues, problems relating to insurance claims for damage are becoming more frequent. While many people believe that an insurance policy will still provide coverage for an empty property, the reality is that policies often do not.

Many insurance policies do not provide coverage for property that has been vacant for more than 60 consecutive days. While many provisions are usually kept in place even after the property becomes vacant, damages resulting from vandalism, sprinkler leakage, broken glass, water, theft, or attempted theft are often excluded. Further, some policies reduce payments for covered losses to vacant property, leaving the policyholder without enough money to make necessary repairs.

Vacancy exclusions can affect unit owners and associations alike. While it is unusual for entire condominium buildings to be vacant, many times, total vacancy is not required for the exclusion to apply. Many policies consider a building “vacant” if at least 31% of the property is not being used for its intended purpose. Therefore, even though a handful of tenants may actually reside in the building, the property may still be considered “vacant” for insurance purposes.

Given that many condominium associations are beginning to resemble the “ghost towns” of old westerns, many insurers are taking advantage of a growing need for coverage. Insurers, such as American Integrity Insurance Group, based in Florida, are writing specific policies for vacant properties. These policies do not make a distinction between occupied and vacant properties and will generally provide the same coverages in either situation.

With hurricane season in full swing, it is important that associations and unit owners check their policy for vacancy exclusions. If you are unsure whether your property meets the definition of vacancy, contact your agent or insurance company directly. If you have a property that is vacant, make sure to contact your agent and inquire about potential policies that will provide coverage. Doing so now will save you a lot of headaches later.