Condo Collapse Prompts Evacuation, Inspections of Similar Buildings

Residents fled a condominium building in suburban Chicago after a floor gave way without warning, spotlighting the risks lurking in older residential buildings and the costly fallout that can follow. The partial floor collapse forced the March 7 evacuation of the four-story building in Morton Grove, Illinois, and has raised concerns about the safety of similar buildings in the area, according to reports. One resident said the collapse initially felt like an earthquake, and multiple residents needed to be rescued via balconies because doors were jammed, WGN-TV reported. No one was injured in the incident.

Preliminary findings suggest the collapse may have been caused by the failure of a single support column in an underground garage at the complex, which caused floors to drop 2 to 3 inches, the news outlet reported. Local officials said they would review records and inspect at least 10 other residential buildings built 50 to 60 years ago with similar below-ground garages, as investigators work to determine whether the collapse was linked to maintenance or the structure’s age.

Recovering from this type of incident “can be quite costly,” said Lisa Menanno, Senior Underwriter, Commercial Insurance, Burns & Wilcox, San Diego, California. It could also lead to other building owners identifying structural vulnerabilities, which could help prevent similar collapses in the future.

“If many of the buildings in the area were built around the same time, one can assume that the construction operations may have been similar,” she said. “It is good that they are requiring neighboring buildings to do a thorough review of their structures and soundness.”

When a condo or apartment building is evacuated for safety reasons, the building owner’s Habitational Insurance policies, including Commercial Property Insurance, can typically provide coverage for repairs and related expenses. However, owners should confirm they have coverage for collapse, said Malcolm Jeffris, Broker, Commercial Insurance, Burns & Wilcox, Denver, Colorado.

“A lot of times, collapse may not be covered,” he said. “It is often overlooked to check for collapse coverage. It is also a gray area in some cases with wear-and-tear.”

A lot of times, collapse may not be covered. It is often overlooked to check for collapse coverage.

Structural failures in focus after Surfside collapse

Increased scrutiny of condo properties has followed other structural failures, including the 2021 condominium collapse in Surfside, Florida, which killed 98 residents and prompted state and local officials to reassess inspection requirements for older buildings, according to the Associated Press. After the tragedy, dozens of lawsuits were filed against those involved in the property’s construction and maintenance.

“There was over $1 billion in damages from that specific incident,” Jeffris said of the Surfside collapse. “The actual building damages were such a small portion of the overall cost.”

These cases can also impact the insurance market, with underwriting standards for older residential complexes coming under closer review in the aftermath of high-profile incidents. “Insurance companies moving forward may have more thorough inspections once a policy is placed and require necessary updates or repairs,” Menanno said. If a building is not being properly maintained, “the property owner runs the risk of cancellation or nonrenewal,” she said.

Insurance inspections often occur when a policy changes carriers or every few years, Jeffris explained, but structural inspections outside of insurance requirements are just as important for condo owners to ensure upkeep.

“Risk management starts with making sure the [condo association] board has an appropriate maintenance schedule and is documenting that work,” he said. “The other piece would be making sure that when they use third-party vendors, they verify their insurance and request to be listed as an additional insured on their contractors’ policies.”

Insurance policies that may respond after a collapse

According to WGN-TV, officials in Morton Grove, Illinois, are not yet sure when condo residents affected by the partial collapse will be able to return to their homes. In the meantime, the American Red Cross and other organizations were helping to support displaced residents with housing and essential needs.

A structural failure at a condo building can trigger a range of losses in addition to physical damage to the building itself, including relocation costs, debris removal, and loss of rental income. Coverage for property damage would typically fall under a building owner’s Commercial Property Insurance, though older complexes may not qualify for the broadest coverage, Menanno said.

“If they do not have the necessary updates, they may not qualify for an ‘All-Risk’ or ‘Special Perils’ policy, which would typically cover a collapse like this,” she said. “You do not want to wait for tragedy to occur. Owners should be reviewing their insurance policies on a regular basis to ensure they have the broadest coverage available.”

You do not want to wait for tragedy to occur. Owners should be reviewing their insurance policies on a regular basis to ensure they have the broadest coverage available.

Third-party bodily injury and property damage claims related to a collapse can be covered by Commercial General Liability (CGL) Insurance and, when higher liability limits are needed, Excess Liability Insurance. Depending on the circumstances of the collapse, other policies — including Directors & Officers Liability (D&O) Insurance, in the event the condo association is accused of negligence or failure to maintain the property; or the Professional Liability Insurance of contractors who had completed work on the building — may also be triggered, Jeffris said.

“A lot of condo associations just carry a basic $1 million or $2 million CGL Insurance policy, but Excess Liability could be very important to have,” he said. “Bodily injury claims can get out of hand quickly, especially with the increasing number of lawsuits we are seeing and the increasing severity in those lawsuits.”

Policy enhancements can impact recovery

Large structural incidents can expose gaps in insurance coverage that affect how quickly and fully property owners are able to recover. “One of the major costs that building owners can face is the relocation of all the tenants or unit owners who were affected by this loss,” Menanno said. “They would also need to ensure that the repairs they make are up to code.”

One of the major costs that building owners can face is the relocation of all the tenants or unit owners who were affected by this loss. They would also need to ensure that the repairs they make are up to code.

The additional cost of bringing a building up to code during repairs is not always included under Commercial Property Insurance, but owners can typically purchase Ordinance and Law Coverage as an enhancement on their policy to help cover this expense. “That is one of the areas where building owners may be underinsured,” Jeffris said.

Many solutions are available in the Habitational Insurance marketplace, he added, but awareness is key.

“The coverages are available in the marketplace; it is more of a question of whether or not they are being overlooked and whether they are insured at adequate values,” Jeffris said. “Think about the potential losses that could happen with the building type you have. What are the risks, do you have the adequate coverages for that, and are there any exclusions for those loss types?”

Think about the potential losses that could happen with the building type you have. What are the risks, do you have the adequate coverages for that, and are there any exclusions for those loss types?