By Randy Opotowsky, Partner

Hurricane Isaac rained down on the Greater New Orleans area almost seven years to the day of Hurricane Katrina. Will there now be another tidal wave of lawsuits between condominium associations and their insurers and unit owners for damages to units and common areas?

Large named storm deductibles have left many condominium associations without actual compensatory coverage. The good news? Most associations did not sustain significant damages to their properties. The bad news? They sustained enough damages that will most likely result in depletion of reserves and/or increased assessments or special assessments.

The Success of the Unit Owner May Depend on the Condominium Declaration

How successful a unit owner may be on their claim may be less about their insurance policy and more effected by the savvy of the drafters of the condominium declaration. Oftentimes, condominium declarations and by-laws include language, which provides waivers of liability for the condominium association or its unit owners.

However, it is increasingly troublesome that waivers are capable of causing nightmares for condominium owners with regards to insurance coverage and claims. One such form of waiver is an advance exclusion of liability, which serves to release certain individuals or the association from liability to any claim under specific circumstances.

Is an Advance Exclusion of Liability Enforceable?

In the recent Fourth Circuit Court of Appeal case of Person v. 2434 St. Charles Avenue Condominium Association, the plaintiff claimed that as a result of an adjacent unit owner’s failure to make repairs to their unit after a casualty event, the plaintiff’s unit sustained water and mold damage. However, the Condominium Declaration included an advance exclusion of liability in the form of a waiver. As a result, the Court held that where the condominium declaration, which constituted the law between the parties, expressly provided an advance exclusion of liability for property damage in the form of a waiver, that waiver was enforceable as written. 88 So.3d 679 (La. Ct. App. 4th Cir. 2012).

The condominium declaration provided that “[e]ach Unit owner waives and releases any and all claims which he may have against any other Unit Owner, … for damages to the Common Elements, the Units, or to any personal property located in the Units.” Id. at 681. The Court emphasized that the waiver was expressly conditioned “to the extent that such damage is caused by a casualty for which insurance coverage is provided.” Id. at 682. The casualty, which ultimately caused the damage to the Plaintiff’s unit, was of the kind covered under the insurance policy. The adjacent unit owner claimed that under this waiver in the Condominium Declaration, he should be released from liability to the Plaintiff. The Court agreed that the advance exclusion of liability was enforceable.

Waiver Having the Force of Law

A waiver, such as the one described in Person, was held to be enforceable and given the force of law. The Louisiana Condominium Act (the “Act”) provides that “[t]he condominium declaration and by-laws shall have the force of law between the individual unit owners.” See La. R.S. 9:1124.115. This language seemingly purports that whatever is in the condominium documents will be enforceable against the individuals bound by those documents, except in cases where the language is against public policy or deviates from those provisions of the Act that cannot be modified.

There seems to be some language lacking in the Louisiana Condominium Act with regards to the ability to contract out and around certain issues or items through the preparation of condominium declarations and by-laws. The concern is that the drafters of condominium documents could include a waiver, similar to the advance exclusion of liability in Person, and limit the access to recourse or recovery for unit owners where damage occurs or when insurance proceeds are inadequate.

Great Potential for Unfair Results

What if a covered casualty event occurs, but because of the high deductible for the insurance plan, a unit owner receives no compensation for damages? Is the waiver still enforceable? What if there is not enough insurance proceeds to compensate a unit owner for damages to their unit and a waiver is included in the condominium declaration releasing the condominium association of its liability, is the unit owner out of luck? There seems to be great potential for unfair results. It seems as though the Person case is just the tipping point. Variations on these facts can be easily imagined and there will be damages and casualty events in the years to come.

This begs the question: can these waivers really be enforceable? Although the Courts may rule on future cases regarding waivers, the legislature may ultimately be required to remedy potentially unfair results in uncovered or undercovered casualty events.