Five years after the Tiara condominium
reopened after being ravaged by back-to-back hurricanes in 2004,
residents learned they may get back $40 million to $50 million they
spent on repairs.
In a 5-2 decision, the Florida Supreme
Court paved the way for the condominium association to head back to
court to recover millions in damages from its insurance broker, which
it claims under-insured the 42-story oceanfront high-rise on Singer
Island.
“We won big,” said Michigan
attorney Mark McAlpine, who represents the association. “We will
finally get our day in court against a broker who admitted he knew
they were under-insured.”
New York City attorneys who represent
insurance giant Marsh & McLennan Companies in the long-running
legal battle declined comment. A Marsh spokeswoman indicated that the
company expects to eventually persuade the courts that the company did
nothing wrong.
“The trial court previously dismissed
all claims against Marsh. Today’s decision does not change that,”
senior vice president Sally Roberts said.
When U.S. District Judge Daniel Hurley
in 2009 threw out Tiara’s suit against Marsh, the condo association
was forced to assess residents for the roughly $50 million that
wasn’t covered by insurance. Because Citizens Insurance only agreed
to pay about $89 million of the roughly $140 million it cost to
rebuild the tallest high-rise in Palm Beach County, owners of the 320
units each paid between $110,000 and $150,000 to make up the
difference.
“It was a terribly disappointing
decision by Judge Hurley,” said association president Norm Adams.
While he hadn’t been fully briefed on the effects of the complex
Supreme Court ruling, he knew it opened an exciting possibility: “We
may get a lot of it, if not all of it, back.”
While most agree the ruling is an
important one, experts disagreed on its impact. Most said it will take
time to sort out the ramifications of the opinion that sparked bitter
dissents from Justices Charles Canady and Ricky Polston.
The ruling, written by Justice Jorge
Labarga, turns on a complex legal principle called the “economic
loss rule.” Courts throughout the nation have struggled to decide
what types of companies should be protected from liability that
isn’t specifically spelled out in contracts. Labarga said in Florida
it will now only apply to product liability disputes.
The most oft-mentioned case that deals
with the economic loss rule deals with a delivery company that sued a
vehicle manufacturer for the profits he lost when a truck, that turned
out to be a lemon, was in the shop. The court ruled that the
manufacturer wasn’t responsible for business losses since in
contract documents it only agreed to fix the truck. Since then, the
protection has been extended to other types of businesses.
In his 2009 ruling, Hurley said the
rule should cover Marsh. Tiara appealed to the 11th Circuit Court of
Appeals. Since the question turns on state law, the 11th Circuit sent
the issue to the Florida Supreme Court for a decision.
Tiara’s attorney said the high court
ruled that insurance brokers can’t hide behind a complex legal
principle. “Marsh tried to argue that they just take orders. That
the insured determines what the coverage should be,” McAlpine said.
The high court rejected that argument,
saying insurance brokers have the responsibility to make sure
buildings are properly insured, he said. “Brokers are going to have
to stand behind the advice they give to the insured,” he said.
“It’s a groundbreaking decision. They aren’t going to be able to
play all these silly games.”
William “Chip” Merlin, an attorney
who represented Tiara in other litigation that erupted as it tried to
rebuild the storm-ravaged condo, said the ruling makes infinite sense.
“To say you can’t sue your insurance agent for economic losses is
almost ridiculous,” he said. “They’re the only kind of losses
you could have.”
Brent Winans, vice president of Clear
Advantage Risk Management in Delray Beach, said people have always
been able to sue their insurance companies for negligence. Had
Hurley’s ruling stood that might have changed. “Florida
policyholders could sue their insurance brokers for negligence before
the case, and, thanks to this ruling, they can still sue their
insurance brokers for negligence,” he said.
McAlpine said it will take months for
the case to be resolved. First the 11th Circuit in Atlanta has to
review the Florida Supreme Court ruling. Then, if all goes well for
the Tiara, the case will be sent back to Hurley for a jury trial, he
said.
Adams
said it’s been a long road for him and other residents, who were
forced out of their homes for five years after two hurricanes hit in
2004 and another in 2005. Putting the building back together turned
into a frustrating odyssey of missteps, misinformation and lawsuits.
“If I wrote a book on it for the Harvard business school they would
think it was fiction,” he said.
Tiara Condominium Association, Inc.. vs. Marsh & McLennan Companies, Inc.