Sudden in its occurrence and shocking in the human tragedies that unfolded in its aftermath, the June 2021 collapse of Champlain Towers South in the Miami suburb of Surfside, Florida, continues to send reverberations among residents and owners of high-rise condominium complexes everywhere, as well as among developers who pursue such projects, and insurance industry professionals who endeavor to protect stakeholders from catastrophic loss.

As the victims, their families, and the community at large attempt to move forward, it’s instructive to examine what happened and why, the settlement and the legislative reforms that resulted, and the impact of the Champlain Towers disaster on the insurance industry.

A Short History

Part of a three-building complex that ultimately would include Champlain Towers North and East, Champlain Towers South opened in 1981 in north-Miami Beach’s Surfside community. It represented the first major construction project in the area since the mid-1970s when Miami-Dade County imposed a construction moratorium barring new construction until necessary water and sewer infrastructure improvements were completed. Lacking appropriate funds and anxious to get development moving, town government, after some debate, accepted the Champlain developers’ offer to contribute $200,000 (roughly $750,000 in today’s dollars) toward those water and sewer improvements. With that, the moratorium lifted, and construction was soon  underway.

Demand proved robust in a sleepy community known mostly for breathtaking ocean views and a strip of “mom and pop” motels. Maximizing revenue was paramount: The L‑shaped design shared by Champlain Towers South and its sister buildings enabled more units to be constructed with alluring ocean-front views while staying within Surfside’s 12‑story height limit.¹ (Later, Champlain Towers South would be granted a variance to build a penthouse that exceeded that height limit.) Other amenities included saunas, valet parking and a heated pool; the pool would later reveal telltale clues as to the root causes of the collapse.²

As the building’s luster wore off, distressful signs began appearing. Residents noticed water dripping in the underground garage, below the pool deck. Others noted that columns in the garage appeared to be leaning.³ During the 1990s, the Champlain Towers’ condo board approved various assessments and certain repairs were then completed. However, the unrelenting deterioration was not addressed. In early 2018, the board began preparing for the Miami-Dade requirement that buildings nearing 40 years in age had to be inspected with all identified deficiencies corrected. The engineering firm’s report in October of that year revealed eye-opening findings; namely, that failed and/or nonexistent waterproofing below the pool deck had significantly damaged the foundational concrete slab and that many of the support columns in the garage needed immediate repair. Additionally, a deeper analysis by the same firm in 2020 found significant deterioration near the pool.⁴

One day prior to the fateful collapse, condo owners received a sobering report that said insufficient savings existed for needed repairs.⁵ Each owner was then assessed their respective share, which ranged from $80,000 to $336,000. Payment was due one week after the collapse.

The Event

Lasting a mere 12 seconds, the collapse occurred at roughly 1:22 AM, with the pool deck sustaining a partial collapse eight minutes prior. Surveillance video showed that the central section of the building collapsed first, isolating and destabilizing the structure’s northeast corner, which in turn collapsed almost instantly. One half of the building’s 136 units were destroyed. Some 98 people were confirmed dead; 126 survived. Incredible in its scope, Champlain Towers South was the third-deadliest collapse in U.S. history, surpassed only by the 1981 Kansas City Hyatt Regency walkway collapse and the 1866 Pemberton Mill collapse in Lawrence, Massachusetts.

The post-event investigation quickly began while rescue and later recovery efforts ran their gut-wrenching course. (Soon after the event, the remainder of the structure was demolished.) Investigators and engineers promptly zeroed in on known deficiencies, including:

• A highly corrosive environment that facilitated decades-long deterioration
• Long-term degradation of reinforced concrete structural support in the basement-level parking garage and under the pool deck that facilitated water penetration and corrosion to reinforcing steel
• Insufficient top-and-bottom steel reinforcing bars in concrete columns
• Missing and inadequate waterproofing
• Deficient construction replete with rampant cost cutting

Multiple inquiries, several conducted by major news organizations, chronicled the myriad deficiencies. Concurrent litigation unearthed other disturbing findings, such as excessive vibrations emanating from pile driving work done during 2016 at the adjacent Eighty Seven Park condo development.⁶ Engineering experts theorized that even the relatively low vibrations documented during work could have exacerbated pre-existing damage along the structure’s perimeter wall.⁷

The end of 2021 brought the troubling news that when the pool deck collapsed on June 24, the building’s fire alarm system promptly sent a distress signal to its alarm company; however, survivors recalled not hearing a siren, klaxon or other warning that would have provided residents a critical seven minutes to flee before the collapse occurred.⁸

The Settlement

The court-consolidated class action suit initially named more than a dozen defendants, including the developers and general contractor for the since-completed and occupied Eighty Seven Park development. Likely motivated by a desire to bring economic and psychological closure to a horrific event without becoming ensnared in a legal quagmire, the parties moved quickly toward resolution.

First to be disposed of were the claims for those who had lost property in the collapse. Precipitating this settlement was Florida Statute 718.119 which states that unit owners “may be personally liable for the acts or omissions of the association in relation to the use of the common elements” up to the value of their units, when damages surpass the limit of its liability coverage.⁹ Because the common elements of the structure were damaged in the collapse, and because the total damages dwarfed the liability coverage issued to the condo association, carriers for the individual unit owners contributed their respective liability limits to a fund of $83 million that received court approval on March 8, 2022. In May, the court approved an increase in the fund to $96 million.

Slightly more than two months later came word that a settlement had been reached for the wrongful death and personal injury claims, with a compensation fund of $1 billion established. More than 25 defendants contributed to the settlement (see list below), most notably $517,000,000 from the security firm responsible for the building’s fire alarm system. Also of note is that $120,000,000 came from Dubai-based developer DAMIC, which purchased the property at auction.

As of this writing, all settlement class members have made individual claims (property damage, wrongful death, and personal injury) for court approval. In the coming months, the court will determine each claimant’s eligibility for monetary payment and corresponding amount to be paid. As a final step settlement funds will be distributed.

Legislative Response

Responding to public outcry, the Florida Legislature, as part of its May special session, passed reforms to the Florida Condominium Act with the goal of preventing a future similar event. The legislation, which applies to condominium and association buildings three or more stories in height, contains the following key provisions:¹⁰

Underwriting Takeaways

While the full impact of the Champlain Towers South collapse likely won’t be felt for several years, at this juncture the following points come mind for those companies insuring multi-unit condominiums or cooperative structures of at least three stories in height:

• Risk Selection – Does your portfolio consist of buildings at or near 40 years of age? If so, to what extent have regulatory requirements and/or 40‑year certifications been met? Have warnings or citations been issued over structural deficiencies and/or overdue repairs?
• Appraisals – Are appraisals current and accurately reflective of current market conditions, such as white-hot South Florida? Is the property truly insured to value?
• Inspections and Reserves – The legislative reforms mentioned above impose formidable requirements. Are your insured properties compliant? Have significant issues been identified sufficient to necessitate a “Phase 2” inspection?
• Capital Expenditure (“CapEx”) Budgets/Condo Association Board Composition – Irrespective of any statutory requirements, maintaining and managing a multi-unit/muti-story structure requires expertise in a variety of disciplines. Is the board up to the task? Does sufficient financial, legal, and risk management expertise exist? Do capital expenditure budgets accurately reflect the costs of repairs and/or improvements within appropriate timeframes?

We will continue to follow new developments in the Champlain Towers South collapse. In the meantime, if you have any questions about anything presented here or if you’d like to discuss this in more detail, please reach out to me or your Gen Re account executive.

Endnotes

1. Konrad Putzier, Scott Calvert and Rachel Levy, “Behind The Florida Condo Collapse: Rampant Corner-Cutting,” The Wall Street Journal, August 24, 2021, https://www.wsj.com/articles/behind-the-florida-condo-collapse-rampant-corner-cutting-11629816205?mod=hp_lead_pos7
2. Arian Campo-Flores and Scott Calvert, “Surfside, Fla., Condo Collapse: From Glimmering Beaches to Ruin,” The Wall Street Journal, December 29, 2021, https://www.wsj.com/articles/surfside-fla-condo-collapse-from-glimmering-beaches-to-ruin-11640773804
3. Ibid.
4. Rachel Levy, Deborah Acosta, and Scott Calvert, “Florida Task Force to Consider Setting Tougher Standards for Condo Building Inspections,” The Wall Street Journal, July 19, 2021, https://www.wsj.com/articles/florida-task-force-to-consider-setting-tougher-standards-for-condo-building-inspections-11626715140
5. Ibid.
6. Sarah Blaskey, Nicholas Nehamas, Ben Conarck and Aaron Leibowitz, “‘[Bleep] that wall,’ contractor said when vibrations near Surfside condo got ‘too high’,” Miami Herald, updated April 21, 2022, https://www.miamiherald.com/news/special-reports/surfside-investigation/article260418037.html
7. Ibid.
8. Sarah Blaskey and Nicolas Nehamas, “‘Lives would have been saved’: Fire alarm didn’t go off before Surfside tower collapse,” Miami Herald, January 21, 2022, https://www.miamiherald.com/news/special-reports/surfside-investigation/article255942717.html
9. Carolina Bolado, “Fla. Judge Gives Initial OK To $83M Deal In Surfside Collapse,” Law360, March 8, 2022, https://www.law360.com/articles/1471694
10. The Florida Senate, SB 4‑D – Building Safety, https://www.flsenate.gov/Committees/BillSummaries/2022D/html/2875