Court: District Court of Appeal of Florida; August 10, 1993; Florida; State Appellate Court
West American Insurance Company appealed a final judgment confirming that Chateau La Mer II Homeowners Association had coverage for collapsed balconies under its insurance policy. The trial court's findings were deemed confusing and contradictory, prompting a reversal and remand for clarification. Chateau La Mer II, a 1981 condominium complex in Destin with 64 units, experienced structural issues due to wood rot and termite damage in March 1991, affecting 15 balconies. West had issued a business owners policy on August 30, 1990, without inspecting the premises. The policy covered direct physical loss from collapse due to hidden decay or insect damage but excluded losses from maintenance or negligent design or construction. Upon notifying West of the collapse, coverage was denied, leading Chateau to seek a declaratory judgment. West argued the loss stemmed from excluded causes without claiming fraudulent inducement or conduct by Chateau. A structural engineer's deposition revealed hidden damage that was not observable without invasive inspection. Experts generally agreed there were no building code violations, though opinions differed on negligence in design or maintenance, with consensus that the construction quality was substandard.
Experts concurred that water leaked from concrete balcony cracks, leading to wood decay and termite infestation. Carol Williamson, the property manager for Chateau from 1986 until the hearing (with a brief absence), testified that the association was unaware of structural issues prior to March 1991, when the balconies' collapse was first recognized, partly due to termite swarming. Although the property underwent regular termite treatments, the presence of termites was unknown until then. The trial court allowed West to present documents from Chateau's records, revealing ongoing maintenance issues, including prior leaks from the balconies and attempts to seal them. One report noted cracking concrete slabs, which allowed water to seep through and cause further damage and rot to the supports. Photographic evidence indicated past repairs on one balcony, but details about the repairs were unclear. Experts inferred that these repairs suggested the association had prior knowledge of structural issues. However, the association's records showed that the builder had returned multiple times to address various problems, including sealing balcony slabs, but documentation regarding communications between the builder and the association was insufficient.
The trial court's final judgment stated: 1) damages to the Chateau La Mer II Homeowners Association were caused by balcony collapse due to decay and insect damage; 2) this damage resulted from faulty construction or maintenance; 3) the association should have been aware of the decay and insect damage at the time the insurance policy was issued; 4) the association had prior knowledge of leaking balconies and decaying wood before the policy was issued. The court concluded that the insurance policy covered collapse damages caused by hidden decay or insect damage, and there was no exclusion for such coverage due to negligence in construction or maintenance. The court referenced a precedent case, Hartford Accident Indem. Co. v. Phelps, to support its ruling on coverage for losses related to hidden decay.
The court interpreted the exclusion clause in relation to the affirmative coverage for plumbing leaks, determining that the exclusion applied only to water damage not originating from the plumbing system. Consequently, it found that collapse caused by hidden decay or insect damage is covered under the policy, while exclusions for negligent construction, design, or maintenance pertain to damages outside of collapse due to hidden decay or insects. In Wallach v. Rosenberg, the appellate court ruled that the insurer bears the burden of proof to demonstrate that an exclusion was the sole proximate cause of damage. In this case, there was no evidence showing that negligent design or construction was the sole cause of the collapse, as the introduction of termites was a factor. The policy did not specifically exclude coverage when a covered cause and an excluded cause combine to create a loss.
The trial court's ruling of coverage aligns with case law and evidence presented. However, it noted that the findings indicated the decay and insect damage were not hidden. The appellate court refrained from overturning the trial court's findings, despite their ambiguous nature, and remanded the case for clarification on whether the decay and insect damage was "hidden" under the policy provisions. The trial court is authorized to receive additional evidence as deemed necessary. The ruling was reversed and remanded for further proceedings. Notably, none of the balconies had collapsed, though they were in a precarious state, and the policy explicitly excludes damages related to maintenance issues such as rust, corrosion, and deterioration. Additionally, there was an objection regarding the late introduction of documents that violated the pretrial order.
