The Connecticut Foundation Solutions Indemnity Company, Inc. (“CFSIC”), a captive insurer chartered and licensed to help Connecticut adjust homeowner claims stemming from pyrrhotite-affected home foundations, has some good news for condo owners.
In a statement, the CFSIC explained that, over the three months that it has been in business, it has reviewed more than 120 construction proposals for work that is now, or that will very shortly be, in process. The CFSIC said that it found that the average gap between what the CFSIC will pay for as allowable concrete costs and the total cost of construction is currently approximately 20 percent of the value of the construction's total cost.
As a result, the CFSIC said, it realized that the cap applying to condo foundation platforms placed an economic hardship on condo owners that was disproportionate to that of homeowners who actually own their foundations.
As a result, the CFSIC said, it had changed its guidelines.
Effective May 15, 2019, the CFSIC said, it will permit a cap of $70,000 per eligible condo unit. If, for example, four condo units are sited on one common foundation platform, where the foundation itself is otherwise eligible for claim consideration according to the CFSIC's standards, a cap of four times $70,000, or $280,000, will apply. The CFSIC added that once the enabling legislation changes (which it expects it will) to permit the CFSIC to underwrite foundation platforms containing more than four units, “the numbers will grow exponentially.” A foundation supporting six eligible units would be capped at $420,000; eight units would be at $560,000.
The CFSIC said that the following rules apply:
(1) This is a change designed to level the playing field among all homeowners with impaired foundations, but the change to the cap applies only to condominiums.
(2) The rest of the CFSIC's underwriting and claims management guidelines remain unchanged. For example, its linear/square footage replacement cost parameters are not changing; the definition of allowable concrete work is not changing; and condo units owned by holders of debt, such as banks and mortgage companies, are not eligible.
Similarly, companies that purchase “distressed” properties for the purpose of flipping them are not eligible. If, using the example of a four-unit condo on one foundation platform, one of the units is bank-owned, the allowable cap would not be four times $70,000, but, rather, would be three times $70,000.
(3) The severity class code determination remains the determining factor in prioritizing claims. If works starts on one foundation in a condominium complex where the foundation is a severity class 3, once that foundation is replaced by the contractor, the contractor will be unable to commence work on a foundation at a different location unless the severity code of that foundation also is a class 3. In other words, the CFSIC said, its position is that active-claim homeowners with the worst foundations must be served first. Therefore, work done on condos will be in phases if a condo association contains foundations with differing severity class codes among all foundation platforms.
(4) The CFSIC is accepting condo applications from associations effective April 18 and will begin to process them on May 15, 2019.
The CFSIC said that it is incurring new foundation claim liability at a rate of $1 million per week.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].