HarrisMartin’s Catastrophic Loss & Liability Update



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– March 2006

Hurricane – Repair Class Action

Plaintiff Says Condo Board Mismanaged Hurricane Repairs, Squandered Insurance

WEST PALM BEACH, Fla. – A resident of a hurricane-damaged condominium has filed a class action against the condo’s board of directors and reconstruction company, alleging gross mismanagement and seeking the temporary appointment of a receiver to determine the building’s fate. Kas v. Tiara Condominium Association Inc., et al., No. 502006CA02 (Fla. 15th Jud. Cir., Palm Beach Cty.).

Ali M. Kas, owner of three units at the 42-story Tiara Condominium in West Palm Beach, Fla., filed the 51-page complaint on Jan. 3 in Florida’s 15th Judicial Circuit Court for Palm Beach County. Kas seeks to represent owners of the Tiara’s 320 units who have been similarly displaced due to damages sustained during Hurricanes Frances and Jeanne.

Putative class members have been subjected to special assessments relating to reconstruction and renovation costs, and they oppose the Tiara’s board of directors’ reconstruction management and agreements with Southern Construction Services Inc., Kas states.

Causes of action against the volunteer board include breach of fiduciary duty, demand for financial audit, appointment of receiver, money damages, declaratory judgment and temporary injunction.

Kas contends that the present board “has inefficiently squandered the association’s revenue, has failed to account for same, has failed to adequately report how the association’s 2004 collected revenue and insurance proceeds have been allocated, has used revenue collected to further self-serving causes that unjustly enrich the board members, has shown unusual favoritism [by offering no-bid contracts to] Southern, has demonstrated an inability to complete the restoration project, has suggested that the association is or soon will be insolvent, and has suggested bankruptcy as an alternative.”

Since the September 2004 hurricanes, the Tiara has remained uninhabitable, Kas says, adding that many residents either directly lost or have still not gained access to personal property because of the board’s decision to allow Southern to move all units’ contents to a warehouse.

Kas states that reconstruction costs, prior to Hurricane Wilma’s causing further damage to the Tiara in October, were estimated at $120 million, which included $30 million already spent to dry out the building over nine months following Hurricane Jeanne. Kas says that the construction industry’s “dry out period” standard is 10-20 days, as water-damaged components that cannot be dried out within that period require replacement. He adds that much of what the board paid Southern to dry was ultimately removed and destroyed.

Kas says that Southern’s failure to establish a fixed completion date for reconstruction precluded several residents from obtaining financing and has forced them to sell their units at a loss.

Approximately 70 more units are expected to be subjected to foreclosure proceedings, while other residents have sustained liens against their units, Kas states.

Kas alleges that the board has exhausted its financial resources, including $50 million in insurance proceeds, yet remains indebted to Southern for at least $25 million. A temporary injunction is sought to prevent the board from enforcing a special assessment of $70 million approved by the board on Aug. 24, to continue the restoration of hurricane damages.

The board, in a lawsuit filed in August against Citizens Property Insurance Corp., blames the Tiara’s money woes on Florida’s insurer of last resort, claiming that Citizens owes the condominium $100 million in claims for Frances and Jeanne damages.

The condo association’s insurance policy with Citizens allegedly covered the building for nearly $50 million, subject to a $1.5 million deductible. The association contends that the two hurricanes should count as separate occurrences, and that the association understood it would pay two $1.5 million deductibles.

While Citizens had issued payments for the first $50 million occurrence by July 28, the insurer has reportedly refused to pay the additional $50 million claim, asserting that once the building sustained one total loss, it could not suffer another. Even if the condo association prevails in its currently pending lawsuit against Citizens, Tiara residents would still be saddled with $20 million in repairs, an amount Kas contends is unreasonably high due in large part to the board’s negligent hiring and dealings with Southern.

Kas alleges that the board has been overcharged by Southern and is being taken advantage of, as evidenced by excessive unused or underused rental equipment and wasteful remediation. Kas also contends that the Tiara building could be rebuilt from the ground up for just $70 million, as opposed to the estimated $120 million required for repairs.

William “Chip” Merlin Jr. of the Merlin Law Group in Tampa, Fla., represents Tiara Condominium Association Inc. in its lawsuit against Citizens.

Document is Available Call (800) 496-4319 or Search www.harrismartin.com

Kas Complaint Ref# CAT-0602-03

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