On April 9, 2013, the San Francisco Board of Supervisors passed an ordinance making it mandatory to seismically retrofit approximately 2,800 soft-story buildings, those

defined as wood-frame residential structures with five or more units and three or more stories with weak first stories. There are roughly 4,300 such buildings. Owners are required to pay a qualified engineer or architect to fill out a form certifying that they are safe or need retrofitting.

If they are found to be seismically unsafe, the owner must have the retrofit work done, obtain permits, and have inspections during the work and a final inspection at the end. Costs range from $10,000 up to $35,000 per unit. Since 2009, the S.F. Department of Building Inspection (DBI) has maintained a list of 2,929 suspect buildings. The list, along with a site map, can be found at http://sfpublicpress.org/softstorylist. DBI is now finalizing the list of buildings to be inspected. The seismic retrofitting required by the ordinance focuses solely on the building’s weak first story in order to provide just enough additional strength to protect its first floor from collapse, but not so much as to drive earthquake forces into the upper stories, placing them at risk of collapse. The question that arises is whether the mandatory retrofit program leaves the property owner vulnerable to legal actions should an earthquake occur before the work is completed. With or without a mandatory or voluntary retrofit program, what is the responsibility of a property owner in maintaining an earthquake-safe building? 

1906: A Very Different Time

The 1906 earthquake occurred in a very different litigious environment than we have today. The more recent 1994 Northridge earthquake in Los Angeles County more closely reflects the kinds of lawsuits that might be brought in San Francisco in the event of a major quake. While we do not have an exact count of the lawsuits filed, there were many hundreds of suits arbitrated, and it is likely thousands of claims were filed by owners against insurance company policies.

Los Angeles has ordinances, voluntary and mandatory, requiring seismic retrofitting, measures  largely sponsored by long-time Los Angeles Councilman Hal Bernson, “Mister Earthquake,” Southern California’s most avid proponent of seismic safety.Southern Californiaattorney Lee Alpert was a primary arbitrator in many of the lawsuits that occurred as a result of the Northridge earthquake. His observations and suggestions on the issue of liability are provided in the article following. With a plethora of federal, state, and local voluntary and mandatory earthquake regulations, lawsuits seem likely should injury or loss of life occur from a major quake. Of course, lawsuits can arise from losses from the collapse of any building. However, DBI’s suspect soft-story buildings list certainly establishes the need for owners to have their properties evaluated and certified as meeting the requisite standards. 

An Earthquake’s Secret Unintended Consequences   

By Lee Kanon Alpert, Attorney at Law

I lived through the 1994 Northridge Earthquake, suffered severe material losses, negotiated with our insurance carrier to attempt to replace those losses, represented clients, and arbitrated disputes in the millions of dollars arising out of the earthquake. From this wealth of experience, I became aware of, but never anticipated, the unintended consequences such natural disasters could create for all involved, especially for the owners of the buildings or properties hit the hardest.

Theories of Owner Legal Liability

After any type of natural disaster, creative theories of legal liability and creative lawyering in order to best replace what has been lost, or to simply benefit financially from the event, often become as damaging to the parties from whom recovery is sought as the disaster itself. Property owners must be particularly careful, lest some or all of the examples below plague them for years to come. Here are some of the circumstances to be aware of and the consequences that arose following the Northridge Earthquake: 

1. Recovery for claims, demands, and even litigation was initiated by both commercial and residential tenants of properties who suffered losses from the earthquake. In some instances, while legal theories of liability may have been weak or nonexistent, settlements were made because the cost to the property owner of litigation by the recipient of the claim, demand, or litigation may have cost more than resolving the issue through any legal process, and would not have been covered by the property owner’s insurance.

2. In some instances, commercial and residential tenants sued their own insurance carriers for damages suffered, attempted to make their claim, demand, or threat of litigation against the property owner’s insurance carrier, and simply looked around for a person or entity that might have some viable means of liability.

3. Claim, demands, and/or litigation arose out of a number of theories of liability, including:

a. The property owner, who may have been obligated under the Los Angeles Municipal Code for earthquake retrofitting or other construction requirements that were not grandfathered in (meaning not having to comply), did not retrofit the property. The legal reasoning goes that the damage sustained by the residential or commercial tenant from loss of use, loss of revenue, loss of property, and/or personal injury would and could have been avoided had such compliance been completed prior to the earthquake. Not a bad theory of liability, provided one can prove that the failure that caused the damage would likely have been avoided had the new standards been complied with and the property brought up to code.

b. The property owner, who may have been obligated under the L.A. Municipal Code for earthquake retrofitting or other construction requirements undertook to meet the new code requirements, but did so in an incomplete or negligent manner. This contributed to the loss of use, loss of revenue, loss of property, and/or personal injury, which would not have occurred but for the negligent attempts at compliance by the owner, which could in theory have been the cause of the damages as set forth above.  A somewhat viable theory.

c. The insurance carrier of the property owner who had coverage acted in an unreasonable manner in delaying the repair or providing the funds for other matters covered, which caused greater harm in many respects to the tenant, who was the third party beneficiary of the insurance coverage. The carrier knew or should have known of that damage to the non-insured tenant and therefore under a third-party beneficiary contract was liable to the tenant as the third party beneficiary of the insurance. Not a great or viable theory.

d. The property owner, who may have been obligated under the L.A. Municipal Code for earthquake retrofitting or other construction requirements, but was grandfathered

under the law and therefore not obligated to retrofit the property, knew or should have known that the property was in structurally poor condition, making it especially susceptible to earthquakes, and thus had a special duty to the tenant to disclose this fact. Not a bad theory.

e. The property owner, who committed in his lease to maintain earthquake insurance for the benefit of the tenant, did not do so and was therefore liable for that damage which would have been covered. A very viable legal basis of liability. (See point b. below)

f. The property owner had been advised, either before, during, or after the tenant leased or rented the building, was aware, either by a soil, geological report, or other means that the property stood on or in very close proximity to a significant earthquake fault or liquifaction zone, and did not disclose this fact to the tenant in writing and did not obtain the appropriate waiver. Questionable liability if the property is located in a properly zoned area and otherwise code and permit-compliant.

Protecting Yourself

The real question arising from these examples, which are far from exhaustive, is what should property owners do to protect themselves from some or all of this liability and risk?

  1. Consider maintaining an earthquake policy on your property that is reasonable and hopefully affordable, that will at least protect you and your property from catastrophic damage.
  2. Insert in your rental agreement a lease or provision stating that you do not maintain earthquake insurance, but that even if you do, it is not for the benefit of the tenant or his/her assets, business or personal safety, but only for the benefit of the owner in the event of damage to the building by an earthquake.  It should further state that the property is located in an area prone to earthquakes and that by initialing the tenant waives all claims, demands and liability that he/she may suffer as a consequence of an earthquake against the owner.  Such a clause should be drafted by an attorney experienced in this aspect of the law.
  3. Ensure that the retrofit work is done by a licensed contractor and is fully compliant with all earthquake and other construction codes and requirements and fully permitted where required by law. 

Measuring Cost Against Risk of Ownership

While the above comments and suggestions can be beneficial to you in the event a property you own is involved in an earthquake, you must measure the risk against the cost of ownership and the protection that you can and cannot provide for yourself. Realize, too, that there is always the likelihood of a claim, demand, or lawsuit being filed against you, whether it has merit or not. A lawsuit, won or lost, or even the threat of a lawsuit, can cost you dearly in money, time, and stress.

So, when acquiring properties for yourself or for lease or rental, do so cautiously and with full knowledge of the risks that flow therefrom. And protect yourself as best you can from known hazards, uncertain but likely hazards, keep your building in a viable and code-compliant manner, and pray!

For more information, please contact: Lee Kanon Alpert, Alpert Barr & Grant, A Professional Law Corporation, Tel. (818) 881-5000, lkalpert@alpertbarr.com.

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