Why are insurance carriers reluctant to insure design professionals on condo projects?
Approximately 16% of Great American’s total gross incurred for design professional claims were for condo project claims, despite a conservative underwriting appetite. Once filed, condo defect lawsuits usually last years, are difficult to resolve, and the costs of defending them can be staggering.
The Plaintiffs: Who’s Behind Condo Project Claims?
Condo project claims are brought by individual unit owners, the managing association, or both, depending on who owns the portion of the building involved. Like many residential projects, condo owners often have unrealistic expectations. This is especially true for first-time homebuyers, who may be drawn to condos under the false assumption that these properties are maintenance and problem-free.
Managing Associations and Maintenance Failures
Condo buildings are typically managed by associations that collect assessments from unit owners. Unfortunately, these assessments are often insufficient to cover the long-term maintenance needs of the property, leading some associations to cut costs and neglect necessary upkeep. When a building faces expensive problems and the association lacks the funds to address them, litigation is frequently the outcome. Associations and unit owners can be challenging plaintiffs to negotiate with. Often, they demand unreasonable settlements and refuse to make realistic concessions.
Contingency Fee Lawyers and Condo Defect Claims
We’ve all heard of ambulance chasers, but what about condo collectors? Contingency fee law firms have started to solicit associations as clients and have even teamed up with forensic design firms to review buildings for errors. These firms intimidate association board members by highlighting that board members could be held personally responsible if they know of a problem and do not take legal action on behalf of the owners before the statute of limitations ends.
The Vanishing Developer
Many developers operate through single-purpose LLCs and dissolve after the sale of a condo project.
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