Condo board OKs settlement

Article Courtesy of Palm Beach Post

By Jane Musgrave
Published September 30, 2006


Nearly two years to the day after Hurricane Jeanne forced them from their homes, residents of the 1515 Tower on Friday were hit by a different kind of maelstrom.

Instead of continuing the legal battle with their insurer, the board of the 30-story West Palm Beach condominium told residents that they had agreed to a $2.25 million settlement far less than the $20 million they were seeking. The settlement was reached Wednesday after an all-day mediation session with a federal magistrate.

"This is a far cry from the amounts claimed by the association in this case," condominium association President Hani Riad wrote in a letter to the owners of the 119-unit high-rise on South Flagler Drive.

But, he said, after a mock jury earlier this month agreed with QBE Insurance that fraud and misrepresentation fueled the condominium's insurance claim, the board felt it had no choice but to settle the lawsuit.

While the mock jury's decision was merely advisory, it gave the board and its attorneys a scary preview of what could happen at trial.

"We were advised by our attorneys that if QBE prevailed on its fraud claim, the insurance policy would be declared void and unenforceable," Riad wrote. "If the policy were void, then there would be absolutely no recovery."

Further, if the condominium lost at trial, it could be forced to pay QBE's legal bills, which were estimated at $1 million.

"Undoubtedly the information contained in this letter will be highly disturbing to many owners," Riad wrote.

While he couldn't be reached for comment, his words were prophetic. As word spread, residents said they were shocked and saddened by the turn of events.

"It's really a shame," said unit owner Jen Werner. "It breaks your heart."

Werner, who this week was moving into a new condominium with an oceanfront view, said she wasn't aware a settlement had been reached. While she said she has moved on with her life, she said she felt for other residents who are financially unable to do so.

"I feel so sorry for those older people," she said.

Already residents have been assessed an average of $63,000 to generate $7.5 million to secure the plywood-covered building and keep creditors at bay. The city was threatening to order that the building be demolished.

At a meeting last week, a city board approved an estimated $250,000 to $400,000 plan to secure the building by late November. At that meeting, one of the association's attorneys told the board that residents were hopeful that a large recovery from QBE Insurance would help them recoup the millions they have lost.

As it is, roughly $800,000 of the $2.25 million settlement will be turned over to attorney William "Chip" Merlin to cover his expenses in preparing for what was expected to be a nearly monthlong trial.

Merlin was reluctant to discuss the settlement. But, he said, the decision of the mock jury was a blow.

"I was very disappointed by the finding of the mock jury," he said. "Orally, they said they wanted to rule in favor of the association. They felt sorry for the people. But the association's own documents indicated that most of the building items that had to be replaced after the hurricane also had to be replaced before the hurricane."

QBE Insurance obtained letters dating back to 1976 from residents complaining about poorly installed doors and windows that allowed rain to pour into apartments. There were also engineering reports that noted structural problems, such as rusted metal studs, existed far before Hurricane Frances struck on Sept. 5, 2004 to be followed 20 days later by Hurricane Jeanne.

"It was a very difficult situation," Merlin said.

But there may be some hope for residents. Last week, Riad said another buyer has been found.

In July, Palm Beach developer Thanos Papalexis reneged on a $56 million deal to buy the building.

The new buyer, whom Riad declined to name, has offered $36.5 million. He said he expected contracts to be sent soon for owners to review.

Merlin said the cost of repairing the building was estimated at $32 million.