A condominium association accused an AIG unit in Florida federal court Monday of "grossly" undervaluing the amount of damages it incurred from a cracked water pipe, saying the entirety of its plumbing system has since failed, causing more than $3.8 million in repair and replacement costs.

Amending a lawsuit it first filed in state court in January against the unit, Lexington Insurance Co., Clearwater Key Association-South Beach II Inc. further alleged that Lexington "grossly undervalued the amount of damage, limiting it to only the 5th floor location."

According to court filings, the coverage dispute stems from a June 2020 water leak in the hallway of the fifth floor of the Clearwater building, which consists of eight floors and 95 residential units. Seeking coverage under an all-risk commercial property policy spanning from April 2020 to April 2021, Clearwater said the leak originated from a large crack in a cast iron pipe, and that remediation and repair efforts were completed by August 2020.

Clearwater said it then reported the loss to Lexington nearly three years later on May 25, 2023, but when the insurer inspected the damage days later, it allegedly undervalued the damage by limiting it to the fifth floor.

And after subsequent inspections in September 2023 and November 2023, Lexington told Clearwater that its coverage decision remained unchanged, the association said.

"During the claim investigation, it was ultimately determined that the cast iron plumbing system throughout the property had failed and needed to be entirely replaced," Clearwater continued, adding that Lexington has denied the extent of such alleged damage.

"Defendant has since continued to undervalue the amount of damage to plaintiff's property and has failed to pay the full amount caused by the loss," Clearwater said.

All told, the association said the plumbing system's repair and replacement, which further involved "tear out and replacement of the building to access the failed plumbing," exceeded $3.8 million.

For its part, Lexington asserted a slew of affirmative defenses in its February answer to Clearwater's original complaint, after the insurer removed the dispute to federal court earlier that month.

Clearwater failed to give Lexington timely notice of the loss as required under its policy, the insurer maintained, alleging that it was only until September 2024 when Clearwater first presented its more than $3.8 million damages estimate.

"During Lexington's investigation of plaintiff's claim, Lexington requested on various occasions to inspect records relevant to plaintiff's claim," the insurer said. "However, plaintiff failed to substantially comply with Lexington's request for records."

Lexington further pointed to various exclusions, including provisions relating to "wear and tear," the "[c]ontinuous or repeated seepage or leakage of water," the "cost to repair any defect to a system or appliance from which water…escapes" and the "cost of excavations."

To the extent that the court finds that Lexington owes coverage for the replacement costs Clearwater claimed, the policy requires Lexington to pay only once the repair and replacement actually completes and is done as soon as reasonably possible, the insurer argued.

Representatives of the parties did not immediately respond to a request for comment.

Clearwater is represented by Shaun Cummings, Chad Florin and Hal Weitzenfeld of Florin Roebig PA.

Lexington is represented by Ricardo J. Fernandez and Melissa M. Sims of Berk Merchant & Sims PLC.

The case is Clearwater Key Association-South Beach II Inc. v. Lexington Insurance Co., case number 8:25-cv-00295, in the U.S. District Court for the Middle District of Florida.