Judge sides with insurers in Grandview condos lawsuit

Nov. 16--LOCH SHELDRAKE -- A five-year lawsuit pitting managers of the fire-destroyed Grandview Palace Condominiums against its insurance companies ended Tuesday when a state judge ruled that the lack of working sprinklers in each of the complex's buildings negated $30 million in insurance proceeds unit owners had hoped would cover their losses.

The appeals judge sided with the Illinois Union and Great American insurance companies' claim that managers of the Loch Sheldrake property breached the policies by not ensuring adequate sprinkler coverage before the April 2012 fire that destroyed what used to be the Borscht Belt-era Brown's Hotel.

Unless overturned on appeal, the decision ends any hope unit owners had of recouping their investments and throws into limbo the property's multimillion-dollar cleanup, which stalled as Grandview pursued the insurance money.

In August, Grandview's Board of Managers said they would begin marketing the property to prospective buyers after unit owners voted against rebuilding. One estimate put the cost of rebuilding at $47 million.

"The appellate judge's decision reinforced behavior of insurance companies who sell policies ... and don't pay for the loss when it happens," said Ivanna Johnson, president of Grandview's Board of Managers. "Totally reinforced bad behavior."

An estimated 65 fire companies and more than 200 firefighters took part in extinguishing the fire, which started in the afternoon and spread rapidly as it destroyed nine buildings at the 396-unit complex, which was a summer getaway for some owners and a year-round residence for others.

The fire came one month after Grandview's managers agreed to correct fire-safety and building-code violations, including non-working sprinklers and alarms. The agreement ended a standoff in which Fallsburg town officials threatened to condemn the property.

Less than four months after the fire, the Illinois Union and the Great American insurance companies sued Grandview.

They accused the board of making false statements on their application for coverage, mainly by attesting that the complex had no existing code violations and that each building was fully protected by automatic sprinkler systems.

The insurers were told one building did not have sprinklers, Johnson said.

"They issued policies anyway," she said.

An appraiser valued the 99-acre property at $900,000 if cleared of damaged structures, debris and asbestos. If sold "as is," the property's value would be zero because the costs to clear the land could be as high as $4 million, according to Grandview's Board of Managers.

Fallsburg Supervisor Steve Vegliante said he was "disappointed" for unit owners.

"We would obviously love to see it be redeveloped," he said.

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