Great American’s Risk Management Department often receives inquiries from our insureds regarding the pros and cons of engaging in condominium projects. Recently, we received a question about entering a project with existing defects. While we aim to provide practical risk management tips, it is imperative that insureds understand the risks involved. A great way to illustrate potential problems is through real-life claim examples. Below is a claim scenario to consider:
Background
This claim relates to a water intrusion issue at a luxury condominium project where the design professional was retained to assist with a stabilization project. The insured was contracted to perform work on the building’s façade to ensure it was declared safe and stable, complying with the city’s façade ordinance. It is important to note that the building had pre-existing water intrusion issues that were ignored by the HOA due to budget constraints.
The design professional’s scope of services did not include a complete restoration of the building’s façade. They were hired to identify areas needing repairs, provide drawings based on those findings, and then send them out for bid. While the proposal did not include any remediation for water infiltration problems, the design professional signed and sealed an inspection report discussing the ‘water tightness of exterior surfaces.’ Additionally, the design professional provided on-site observation services and certified that the remedial work was done in accordance with contract documents. This was done five years before the claim was made.
The Plaintiff’s Claim
The plaintiff, HOA, filed a lawsuit against the design professional and general contractor, alleging water intrusion issues in the building. The plaintiff’s expert report and photos showed interior water damage in the units, efflorescence on the brick façade, and other conditions contributing to water intrusion problems at the apartment complex. The plaintiff’s expert criticized the design professional’s designs, opining that the plans did not include sufficient repair details to allow a contractor to perform proper repairs.
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