A RULING issued by a Manhattan Supreme Court Justice last month could have significant ramifications for condominium unit owners in New York, some real estate lawyers and insurance specialists say.

The ruling basically holds that individual condominium unit owners can be held personally liable for all or part of the damages awarded to people injured as a result of defects in common areas of a building.

This, the lawyers say, presents an important departure from the traditional legal understanding that like co-op corporations, condominium associations — rather than individual apartment owners — are ultimately responsible for damage awards for injuries sustained in or caused by parts of the building that are owned in common by the apartment owners. Moreover, they say, the ruling could also make it necessary for both condominium associations and individual unit owners to purchase large amounts of additional insurance to cover the newly expanded exposure to liability.

"This is a very significant case," said Marc Luxemburg, president of the Council of New York Cooperatives and Condominiums. "If this judge is right, condominium owners are going to have basically unlimited exposure to personal liability for injuries caused by defects in common areas. In addition, it will almost certainly drive up the cost of insuring a condominium."

Wayne Batcheler, a Manhattan lawyer who represented a unit owner in the case, agreed. "This works a huge revolution in the personal exposure of condo owners to liability," he said. "If this case stands, individual condo owners will be on the front lines of every liability case filed by trial lawyers. If somebody slips and falls in the lobby, suddenly every condominium unit owner becomes a potential defendant and has to go out and hire a lawyer."

While such statements may sound alarmist, condominium lawyers maintain that the ruling reflects such a pronounced change in the status quo that it is not far-fetched to suggest that unit owners could be individually named in almost any liability lawsuit filed against a condominium building.

Mr. Batcheler noted that the ruling potentially makes individual unit holders "jointly and severally" liable for damages.

"That means that every owner can be found responsible for the entire amount," he said. "The trial lawyers will go after the owners with the deepest pockets."

The ruling was issued in one of a pair of lawsuits filed on behalf of Michael Taratuta, who received serious head injuries in July 2001 when a piece of chain-link fence fell off the roof of a building at 69 West 106th Street. In the first suit filed, Mr. Batcheler said, the condominium association, its board of managers and the original sponsor of the building — an 11-unit condominium — were named as defendants. Later, the plaintiff filed a second lawsuit. "Apparently, they discovered that the condominium had only $2 million in liability insurance and they didn't think that was enough," he said. "So, in July of 2002, they sued each unit owner individually."

That, he said, makes this case different from any other New York personal injury case involving a condominium. Mr. Batcheler said that traditionally whenever a person is injured as a result of a defect in a condominium's common elements, the injured party would sue the condo association, the board of managers and, sometimes, the original sponsor. If the injured party wins a damage award, he said, the amount awarded is typically paid by the condominium association's insurance, with individual board members being legally insulated from judgments if the insurance coverage is not sufficient to cover the damage award.

This, however, is the very reason that the plaintiff in this case filed suit against the individual unit owners. Anthony Gair, a Manhattan lawyer who represented Mr. Taratuta, acknowledged that given his client's serious, permanent injuries, the $2 million in insurance coverage would not be enough to adequately compensate the client.

"If I tried the case to judgment and got a judgment for more than $2 million, whom do I enforce the balance of the judgment against?" Mr. Gair said. In other words, if a plaintiff can sue only the condominium association and its board of managers, and if the board members cannot be held personally liable, then the only other place the plaintiff could get compensation from would be the condominium association. But because of the way condominium buildings are owned, the condominium association basically has no assets.

In a co-op, by contrast, since a corporation owns the building, when a judgment is rendered against the corporation, any damages that are not covered by insurance can come out of the corporation's assets, Mr. Gair said, even if that means selling the building itself.

With a condominium, however, individual unit owners each own their apartments as well as a proportionate interest in the building's common elements. The condominium association owns nothing. So, Mr. Gair said, any judgment against the association — or its board — is enforceable only up to the amount of insurance the building carries.

As a result, Mr. Gair said, since the unit owners are the legal owners of the common areas, it makes sense that they should be responsible for injuries caused by defects in those areas.

In fact, Mr. Gair said, if individual unit owners cannot be held personally liable and if board members cannot be held personally liable and if the condominium association itself has no assets, a condominium building would be basically "judgment proof" for injuries caused by common elements.

Apparently, that argument was compelling. On Jan. 8, Supreme Court Justice Sherry Klein Heitler issued a ruling on a motion filed by the unit owners seeking to have the case against them dismissed. They argued that since the state's Condominium Act places responsibility for the common elements with the board of managers and since unit owners have no control over the common elements, it is the board — not the unit owners — that should be responsible for any liability that results from defects in common elements.

Justice Heitler disagreed. "It is well settled that in order for an owner to escape liability, an owner must relinquish control, management and ownership," she wrote in her rejection of the unit owners's arguments. "Defendants have entered into a contract for management services with the board; they have not relinquished any ownership whatsoever."

As a result of that ruling — which is being appealed — the case is set to go to trial with the unit owners as defendants. If the plaintiff prevails, it is conceivable that the unit owners may be held liable for any amount exceeding the $2 million in coverage.

In addition, it is unclear whether a unit owner's insurance policy will be of any help. Michael Zeldes, a senior vice president for Kaye Insurance Associates in Manhattan, said it is difficult to predict how carriers will react to claims against individual unit owners.

"Our feeling is that most reputable homeowner's insurance carriers would provide a legal defense," Mr. Zeldes said. "But with no precedent for this type of claim, it's hard to say whether they will agree to pay any resulting judgment."

While there are uncertainties about unit owners' ability to obtain coverage for injuries that occur in areas outside their apartments, it is clear that if the ruling stands, condominium associations will have to make sure they have enough coverage to reduce the potential for damage awards coming out of unit owners' pockets.
"But how much is enough?" asked Mr. Luxemburg, the president of the co-op and condo council. "You could have $10 million in coverage, but even that's not going to be enough when the plaintiff gets a judgment for $20 million. In this day of telephone-number recoveries, you can never really say how much coverage is enough."
Copyright 2004 The New York Times Company

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