National Title Ins. Co. v. Lakeshore 1 Condominium Ass'n, Inc., 96-2225
| Decision Date | 19 March 1997 |
| Docket Number | No. 96-2225,96-2225 |
| Citation | 691 So.2d 1104 |
| Parties | 22 Fla. L. Weekly D703 NATIONAL TITLE INSURANCE COMPANY, Appellant, v. LAKESHORE 1 CONDOMINIUM ASSOCIATION, INC., Appellee. |
| Court | Florida District Court of Appeals |
Hoover & Phillips and Richard C. Waller and William Randol, Jr., for appellant.
Carman, Beauchamp & Sang and Kenneth P. Carman, for appellee.
Before JORGENSON and SHEVIN, JJ., and BARKDULL, Senior Judge.
National Title Insurance Company ["National"] appeals an adverse final summary judgment in its negligence action against Lakeshore 1 Condominium Association, Inc. ["Association"]. We reverse.
National owned the first mortgages on two units at Lakeshore 1 Condominium. The Declaration of Condominium of Lakeshore 1 gives the Association control over insurance matters affecting the condominium. The Association must purchase insurance "for the benefit of the Association, the Unit Owners and their respective mortgagees, as their interest may appear...." Declaration of Condominium p 14.1 (emphasis added); see § 718.111(11), Fla.Stat. (1993). The insurance must cover "[t]he building(s) and all other insurable improvements upon the land, including all of the Units...." Id. at p 14.4.1. Any insurance proceeds not used for reconstruction are "distributed to the Unit Owners and their mortgagees as their interest may appear." Id. at p 14.6.2 (emphasis added). The Declaration names the Association as the "irrevocably appointed agent for each Unit Owner, [and] for each owner of a mortgage upon a Unit ... to adjust all claims arising under insurance policies purchased by the Association and to execute and deliver releases upon the payment of claims." Id. at p 14.7. In the event a mortgagee endorsement exists in relation to any unit, the unit owner's share of insurance proceeds shall be held in trust for the mortgagee, "provided, however, that no mortgagee shall have the right to determine or participate in the determination as to whether or not the damaged property shall be reconstructed... ." Id. at p 14.14. The Declaration thereafter acknowledges that "[a]ll covenants contained [t]herein for the benefit of any mortgagee may be enforced by such mortgagee." Id. Thus, the mortgagees have no control over matters of insurance or reconstruction.
Lakeshore 1 Condominium sustained substantial damage as a result of Hurricane Andrew; the unit owners were forced out of their units. The condominium's insurer paid the Association $3,400,000 on its damage claim for the benefit of the unit owners and mortgagees. The Association opted to repair the damage and executed a contract for $2,900,000 with a construction company. However, the reconstruction was not completed, and the insurance funds were dissipated.
National's mortgagors defaulted on their mortgages. National foreclosed on the mortgages and acquired title to the damaged and uninhabitable units. National sued the Association and its officers and directors seeking damages for the dissipation of the insurance proceeds, in which National claimed an interest. National asserted that the Association negligently administered the insurance proceeds. 1 The Association filed a motion for summary judgment asserting that as a matter of law National could not establish the negligence elements: National could not establish that the Association owed it any duty, or that a breach was the proximate cause of National's damages. The Association contended that if it owed a duty to anyone it was solely to the unit owners, not the mortgagee. The trial court granted the Association's motion, finding that National "cannot establish a contractual, statutory and/or common law duty, or breach thereof, owed to it by [the Association]...." National appealed.
In determining whether National has asserted a cognizable cause of action, we must address whether the Association owed National a duty of reasonable care in managing the insurance proceeds. We hold that the Association, having undertaken to manage the proceeds on behalf of unit owners and mortgagees, owed National, a mortgagee, a duty to use reasonable care in the management of the proceeds.
Establishing the duty element is the "minimal threshold legal requirement" for asserting a cause of action in negligence. McCain v. Florida Power Corp., 593 So.2d 500, 502 (Fla.1992) (footnote omitted). "The duty element of negligence focuses on whether the defendant's conduct foreseeably created a broader 'zone of risk' that poses a general threat of harm to others." McCain, 593 So.2d at 502. Florida law recognizes that a legal duty arises "whenever a human endeavor creates a generalized and foreseeable risk of harming others." McCain, 593 So.2d at 503. The Restatement (Second) of Torts recognizes four sources of duty: legislative enactment and administrative regulation; judicial interpretation of the enactments or regulations; other judicial precedent; and, a duty arising from the general facts of the case. Restatement (Second) of Torts, § 285 (1965). The case before us falls within the last category, the class of cases where the duty arises from the acts of the defendant. 2
Where a defendant's conduct creates a foreseeable zone of risk, the law generally will recognize a duty placed upon defendant either to lessen the risk or see that sufficient precautions are taken to protect others from the harm that the risk poses.... [E]ach defendant who creates a risk is required to exercise prudent foresight whenever others may be injured as a result. This requirement of reasonable, general foresight is the core of the duty element. For these same reasons, duty exists as a matter of law and is not a factual question for the jury to decide: Duty is the standard of conduct given to the jury for gauging the defendant's factual conduct. As a corollary, the trial and appellate courts cannot find a lack of duty if a foreseeable zone of risk more likely than not was created by the defendant.
McCain, 593 So.2d at 503 (citations omitted).
In this case, there is no doubt that the Association's conduct in managing the insurance proceeds created a foreseeable zone of risk encompassing all persons who had an interest in the proceeds. Renovation, construction, or reconstruction require vigilance and care to avoid depletion of the construction budget. The Association did not own the insurance proceeds. The Association was managing the proceeds on behalf of the owners and mortgagees pursuant to the authority granted by the Declaration of Condominium. See Declaration of Condominium p 14.1, 14.7 (). Having decided to reconstruct the property using the insurance proceeds, the Association assumed the duty of care commensurate with the enterprise it embarked upon. The obvious duty of care when managing funds for others is to use reasonable care to avoid depletion through negligent management or mismanagement. The foreseeable risk is the depletion of the proceeds belonging to others. This court is not free to relieve the Association of the duty to lessen the foreseeable risk of injury or the duty to protect those who have an interest in the proceeds from the harm the risk poses: depletion of the funds through mismanagement. See McCain, 593 So.2d at 504 (). Because the Association's activity created a foreseeable zone of risk, a duty of care arises as a matter of law.
National's complaint clearly establishes that the Association undertook the enterprise of reconstruction with the use of the insurance proceeds on behalf of the unit owners and the mortgagees. Based on this undisputed fact, we may conclude that the Association assumed the duty to avoid foreseeable risk of injury to the proceeds' owners. Hence, the complaint clearly demonstrates the basis for the Association's duty.
Having established that the Association's conduct created a foreseeable zone of risk, and that it had a duty to use reasonable care to lessen the foreseeable risk of injury to proceeds' owners, we must next consider the Association's argument that National is not a member of the group to which it owed any duty. The Association admits in its motion for summary judgment that it owed the unit owners a duty of care to properly manage the funds. However, it asserts it owed no duty to National, the mortgagee. We disagree. As Judge Cardozo wrote many years ago, "[n]...
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