Image from Ryan Murphy / Associated Press
The collapse of a three-story apartment building in Brooklyn on Wednesday could test several layers of commercial insurance at once – property, builders risk, general liability, professional liability, workers’ compensation and excess – as investigators examine whether excavation on the lot next door brought it down.
Eight people were killed and at least 18 were injured, including four firefighters, according to Sky News. The building at 1321 Flatbush Avenue fell into the excavation pit at the neighboring 2625 Bedford Avenue site, where Buildings Commissioner Ahmed Tigani said crews had been digging that day, Gothamist reported. The neighboring site held permits for foundation and excavation work.
Brooklyn District Attorney Eric Gonzalez has opened a criminal investigation, and the New York City Department of Buildings (DOB) has not yet determined a cause. Mayor Zohran Mamdani said five entities involved in the construction site are tied to roughly 100 other sites across the city, which the DOB began sweeping on Thursday.
Read more: Eight dead in NYC building collapse as stop-work violation emerges
Oscar Seikaly, CEO of Miami-based NSI Insurance Group, sees the makings of an aggregation event.
“The Brooklyn building collapse could become a significant construction liability, property damage and casualty aggregation event, with implications extending well beyond the immediate loss,” he said. “Fatalities, potential wrongful death and bodily injury claims, damage to neighboring properties and allegations of construction negligence could result in a substantial ultimate insured loss.”
The incident could implicate multiple layers of commercial insurance, depending on the investigation’s findings, policy terms and contractual relationships among the building owner, developer, general contractor, excavation contractor, subcontractors, architects, engineers and other professionals, he added.
Seikaly listed property cover for the collapsed building and separately insured neighbors, subject to collapse provisions, and builders risk for the project under construction.
Commercial general liability (CGL) policies held by the owner, developer and contractors could respond to bodily injury and wrongful death claims. Workers’ compensation would respond for injured workers, and umbrella and excess layers could follow if losses exceed primary limits. Architects and engineers could face errors and omissions claims over design or inspections.
“The ultimate exposure will depend on how responsibility is allocated, which policies respond, available limits, and any coverage disputes or recovery actions among the parties and their insurers,” Seikaly said.
New York law raises the stakes for the excavation side. A state appellate court held in 2020 that section BC 3309.4 of the city’s Building Code imposes strict liability when excavation damages adjoining property, although the duty to protect shifts to the neighboring owner if a requested license to access the property is refused.
Structural plans for the Bedford Avenue project called for steel, timber and concrete shoring, vibration monitors and crack gauges on surrounding buildings; Gothamist reported it was unclear whether those precautions were taken. Mamdani has also said he was troubled by a DOB report from earlier this year that noted cracks in the collapsed building.
Kevin Dean, a member at plaintiffs’ litigation firm Motley Rice, told Insurance Business that he expects much of the fight to happen between carriers. “There are several ways disputes exist, some between the insured and the insurer, and others between and amongst multiple insurers,” he said. “They are all trying to figure out what was the initial or root cause of the collapse.”
If investigators pin the failure on a subcontractor, Dean said, other insurers will point to that party and its carrier and seek indemnity for what they pay neighbors and victims’ families. He added that the collapsed building’s owner could share blame if the property had not been kept up to code.
“Unfortunately, workers’ compensation will bar employees from suing their employer," said Dean, adding those workers could still pursue third parties such as subcontractors, architects and property owners. “These contracts are going to have performance standards and requirements and if any breached, then it will focus all on that party."
Seikaly expects Brooklyn to reinforce caution that has built since the 2021 Surfside condominium collapse in Florida, which killed 98 people. Five years on, that caution is still shaping placements.
Read more: No cover, no buyers: the insurance gap that stopped a $1.6bn Surfside tower in its tracks
“The insurance market has already become more cautious about structural risks, particularly following the Surfside condominium collapse in Miami-Dade County,” he said.
“The Brooklyn collapse could further sharpen that scrutiny, particularly for older buildings adjacent to excavation or major construction. Insurers may seek more detailed evidence of preconstruction condition surveys, foundation protection, structural monitoring and contractor risk management, potentially affecting underwriting requirements, pricing, deductibles and available capacity.”
