High-Rise Building Collapses and Insurance Towers
The following article by Chip Merlin of the Merlin Law Group (Florida) highlights one of the often-under-appreciated complexities associated with the use of layered insurance programs involving many players whose interests cannot be completely aligned and which lead to unforeseen consequences -
It involves the 24 June 2021 collapse of Champlain Towers South in Surfside, Miami, Florida, with the loss of 98 lives; a catastrophic yet predictable outcome of decades of inattention to the quality of the built environment which, along with the 14 June 2017 Grenfell Tower, London, disaster (72 lives lost), constitute an unwelcome reminder of how far regulation in developed countries has slipped.
One of the many potential factors contributing to the Champlain Towers collapse was the work associated with the construction of the Eighty-Seven Park condominium on a neighbouring property.
The main contractor for Eighty-Seven Park was John Moriarty & Associates of Florida, Inc. (JMAF), who are one of a number of individuals and entities being directly sued, or subject to cross-claim or subrogated recovery action, across a range of lawsuits.
JMAF have a liability insurance program comprising multiple policies in multiple layers. Graphically, this typically looks like blocks and pillars placed upon and beside each other – hence the use of terms like ‘stack’ or ‘tower’ to describe how the insurance program has been constructed (excuse the pun).
They have one tower for their annual insurance program (referred to as the ‘Practice Tower’) and there exists a specific tower for the Eighty-Seven Park project (referred to as the ‘Contractor Controlled Insurance Program’) in which they participate – the latter acting as the ‘underlying’ tower and the former the ‘overlying’ or ‘excess’ tower for the project.
And, if that wasn’t complicated enough, the terms of the policies comprising both ‘towers’ and how each of those policies are triggered, varies – a vitally important issue in relation to whether liability for any particular loss flows evenly throughout the underlying and overlying layers (and between policies comprising each of those layers), including how a claim is assessed/exhausts each layer before moving into the next.
But wait ….. there’s more. In the court case that prompted this article one of the insurers involved, Starr Indemnity & Liability Company, participated in more than one program/policy/layer and, the terms of their participation contain an anti-stacking provision preventing multiple application of deductibles/limits to a single loss/event. Application of such a clause in layered insurance programs compounds the complexity and can have the effect of knocking out of play one or more components of what would otherwise be a fully integrated program.
Such is the potential outcome of the Starr Indemnity & Liability Company v John Moriarty & Associates of Florida Inc in the US District Court of Massachusetts. But, the fact that Starr have put on the case in the first place should be a red flag to all involved in constructing insurance program towers.
Disclaimer: As with anything to do with North American liability insurance, any analysis requires detailed investigation and considered thought. The author has not yet been able to devote sufficient time to that – this article simply (if I dare use that word) constitutes a heads-up, more generally, for any in our insurance profession involved in the use of layered insurance programs, whether they be liability or property, and especially so in the current hard market where insurers no longer feel obliged to follow the terms of the original (underlying) policies or, worse, preclude a proper, professional assessment of the exposure they’re taking on by applying clauses that transfer that risk to an insured.
NB: And I haven’t dared venture, again, into the complexities associated with North American broad form liability products (see my earlier article on the Icon Group and Opal Tower and how they transition between ongoing and completed operations).