Condominium owners did not follow advice to increase insurance prior to fire, lose appeal against property manager

By David Yates | Oct 19, 2017

GALVESTON – A property management company whose advice went unheeded when recommending condominium owners up their insurance is not liable because coverage was insufficient following a fire at the complex, according to Texas’ First Court of Appeals.

After the fire at the Maravilla Condominiums in Galveston, several unit owners filed suit against Ted W. Allen & Associates (TWA) and William Etheredge III for breach of contract and negligence.

In response, Etheredge and TWA each filed no-evidence motions for summary judgment, which the trial court granted, leading to the appeal.  

Specifically, Etheredge presented evidence that the Maravilla Homeowners Association and its board of directors neglected to heed his recommendation to increase insurance coverage for the complex prior to the fire.

“The summary-judgment evidence establishes that the Board did not always follow Etheredge’s advice on increasing insurance coverage,” states the First Court’s opinion, issued Oct. 19.

“We affirm the judgment of the trial court.”

Case history

In 2005, Etheredge and his company, Etheredge Real Estate & Property Management, entered into an agreement with the HOA to be the property manager for the complex, which was renewed annually through 2009, court records show.

The terms of the 2008 agreement state: “It shall be the Board’s sole responsibility to [e]nsure the proper insurance coverage is in effect.”

Nevertheless, Etheredge agreed to review and recommend to the board “from time to time” whether the amount of insurance coverage was adequate. Etheredge also agreed to be responsible for maintenance and upkeep of the premises, court records state.

Etheredge first recommended to the board to increase the amount of general liability insurance to $5 million in 2005. The board agreed, and Etheredge assisted in obtaining insurance for that amount.

TWA was the insurance agent that assisted in procuring the requested insurance.

In 2007, Etheredge again recommended raising the amount of insurance, this time to $10 million to cover catastrophic loss.

The board tabled the discussion and did not raise the amount of insurance, court records state.

In an affidavit, Etheredge said that he “further discussed the status of insurance coverage with the Board and its members over the ensuing months,” but Etheridge and the board continued to procure general liability insurance with a $5 million policy limit.

TWA was the insurance agent for the policies.

Furthermore, prior to the fire, TWA sent a letter to the HOA discussing damages resulting from Hurricane Ike on Feb. 19, 2009.

TWA discussed how many properties in the city were underinsured for wind and water damage. The letter encouraged Etheredge and the board to reassess the value of their property and to ensure that the property was sufficiently insured, court records state.

The HOA responded through its attorney on March 30, 2009, asserting that it was TWA’s responsibility to verify that the property was properly insured. TWA did not respond to this letter and no further action was taken by TWA or the HOA.

On June 3, 2009, some welders were working on a metal railing on the premises. A spark from the welding started a fire. The welders present when the fire began stated in a report that they turned on some water hoses, but no water came out.

One of the plaintiffs testified in her deposition that the fire suppression equipment was not in proper working order.

By the time the fire had been put out, about half of the complex had been damaged. The insurer paid the full $5 million on the coverage, and the HOA subsequently issued a special assessment to the condominium unit owners, including the plaintiffs in this case, to cover the remaining cost of repairs.

The Unit Owners also lost rental income during the time it took to reconstruct the units.

In their suit, the unit owners asserted that Etheredge and TWA breached their contract obligations and common-law duties to properly insure the property against fire damage.

For Etheredge, the unit owners also alleged that he breached his contract and violated his common-law duties to ensure the fire suppression equipment on the premises was in proper working condition.

Justices found evidence in the record that the fire suppression equipment was and wasn’t working properly during the fire.

“Even accepting that the equipment was not working properly, however, there is no evidence in the record to show what problem with the fire equipment Etheredge failed to discover and remedy or to show what amount of the fire damage is attributable to any such failure,” the opinion states.

“There is some evidence in the record indicating that the city of Galveston was having issues with water pressure during the time of the fire, suggesting that any failures with the fire suppression equipment may not have been caused by any failing of Etheredge.

“Nothing in the record rebuts this evidence or creates a fact issue to suggest any equipment failures were attributable to Etheredge.”

Justice Laura Carter Higley authored the opinion.

Etheredge is represented by Stephen Bailey and Matthew Prewett, attorneys for the Houston law firm Shepherd Prewett Miller.

The plaintiffs are represented in part by Houston attorney Dax Faubus.

Appeals case No. 01-15-01081

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