After court ruling, new condo liability concerns

A January court ruling that said individual condominium owners can be held liable for defects in their building’s common areas continues to raise concern.

“People are definitely talking about it,” said Marc Luxemburg, president of the Council of New York Cooperatives and Condominiums. “I think the first fallout has been insurance. They have been alert to recognize the implications to insuring condo owners.”

Until this ruling, there was no reported New York case of a condo owner being held liable for damage outside his or her unit. The condo board or association got insurance for the common areas, which were owned collectively. Owners held percentages of common areas, but that didn’t mean they were liable for a judgment individually.

Now a January ruling, from a New York Supreme Court Justice seems to have changed that, and may send condo owners scrambling to assess their insurance.

The suit, first reported in The New York Times, was filed by Michael Taratuta, who suffered serious head injuries in July 2001 when a piece of chain-link fence fell from the roof of a building at 69 West 106th Street. In a $50 million suit filed in 2002 – after discovering that the condominium association only had $2 million in liability insurance – the plaintiffs filed suit against each unit owner, according to Wayne Batcheler, a lawyer for one of the condo unit owners.

In January, Supreme Court Justice Sherry Klein Heitler ruled against a motion from the unit owners to have the case against them dismissed. She decided that the case could proceed against the unit owners, in part because they had not relinquished ownership of common areas and therefore faced liability. “Whether or not the board is also liable to plaintiffs is independent of whether or not the defendants are liable to plaintiffs,” Heitler wrote.

As it stands, the case is slated for trial with the unit owners as defendants. If Taratuta prevails, the unit owners could be held liable for any amount over the $2 million in coverage. In an interview, Batcheler said Heitler’s ruling is being appealed. If upheld, he said it could affect several areas of the condo industry, particularly insurance.

“Condo boards will start reviewing the insurance that they carry,” he said. “And I don’t know what individuals can do. I don’t know how much is enough.”

Batcheler and Luxemburg said the ruling also creates a difference between condos and co-ops. Condos are attractive because people believe they can sell them faster, but now they might have greater legal risk. Since a co-op is owned by a corporation with shareholders who have limited liability, a co-op owner might lose is his or her apartment at worst, but couldn’t be personally liable for a multimillion-dollar judgment.

“All of a sudden in the twinkling of an eye, the equation has flipped,” said Luxemburg.

Still, one lawyer disputed that the ruling created a new legal precedent.

“My view is that it’s not a very significant decision,” said Richard Siegler, who practices condo and co-op law for Stroock Stroock & Levan in Manhattan.

Siegler said New York condo law has always held that “common elements” are owned “jointly and severally,” and this case just shows one of the exposures of having ownership in a condo. He said there have been unsuccessful proposals to revise state law so that liability is proportionate to common area ownership share.

The real problem, Siegler said, is that the building in Taratuta’s case did not have adequate insurance. Batcheler disputed this, pointing out that the plaintiff plans to seek $50 million in the suit. “What is adequate insurance?”

The decision does not appear to be affecting condo buyers. Representatives for two large Manhattan brokerages had not heard of the ruling as of mid-March. A spokesman for a large condo managing agent was also not familiar with the case.

Amy Lee, a sales associate for Coldwell Banker Hunt Kennedy and a condo owner herself, said the decision may put pressure on condo boards to help individual owners get the proper insurance. Lee was not aware of ruling, but quickly called her lawyer after being asked about it.

Damian Testa, president of Kaye Insurance Associates in Mannhattan, said the ruling unfairly removes the corporate veil for condo owners. Now, even if the building has liability insurance, that may not protect an individual owner, and a plaintiff could theoretically settle a claim with a condo association but keep pursuing an individual owner.

“It just becomes burdensome, stupid and adds deep pockets to the plaintiffs,” Testa said.

Between general liability for a building, and homeowner’s insurance, Testa said the insurance is probably on the market to cover condo owners if the ruling stands. But he said it could add costs that may push more carriers out of the market. “This is salt in the wound,” he said.