Q–Our condominium association, in a 1920s-era six-flat, is reevaluating our insurance policy.
The entire matter has turned into a mess of comparing apples and oranges as we consider the different, confusing quotes.
What sort of insurance coverage is required by Illinois condominium law, and what additional coverage might be recommended beyond that?
Are there any pitfalls to be aware of as we investigate this question further?
A–The insurance requirements for condominium associations are contained in Sections 12 and 18 of the Illinois Condominium Property Act.
The two basic coverages the board must obtain are property damage and public liability insurance.
The property damage coverage insurance must cover the full insurable replacement cost of the common elements and the units. Association insurance for the units will generally cover the bare walls of the structure.
Based upon the declaration, the board may add coverage for unit decorating and furnishings, known as improvements and betterments, provided that the owners pay for the increased premium.
Public liability insurance covers personal injury and property damage claims by parties other than association members. Note that this form of condominium insurance must contain a waiver of any right of subrogation by the company against the named insureds.
This means that the insurance company cannot proceed against a party whose actions may have given rise to the public liability claim.
Section 18 of the state law requires fidelity bond coverage and directors’ and officers’ liability insurance.
Fidelity bond coverage insures the association against theft of funds by individuals who handle money for the condominium. While that insurance requirement only applies to associations of 30 or more units, I would recommend such insurance for all associations.
Directors’ and officers’ liability insurance covers the board members against claims arising from their official acts such as enforcement and spending decisions or contracts. A condominium owner should not serve on the board unless he or she confirms that the association has this coverage.
The board must also follow the insurance requirements of the declaration for additional coverage. Supplemental coverages may include workmen’s compensation insurance, boiler and machinery coverage and, in some cases, plate glass and flood insurance.
The best coverage is found in package policies from insurance companies that specialize in covering community associations. The package will usually include all or most of the coverages required by the state law and a standard declaration.
Q–There are a number of owners in our condominium building who are very unhappy with our management company. This company has managed our building for approximately the last 12 years.
With this in mind, how does the board evaluate prospective management companies, given that board meetings will have representatives of the current management company in attendance?
How do we go about ensuring a smooth transition? Do management contracts usually have transition phases written into them? If the owners decide to replace the management company prior to the contract expiration, is there any “magic percentage” needed to replace the agent?
A–The best means for obtaining information on management companies is through the solicitation of proposals and personal interviews.
Because only the decision to hire the management company must be made at an open meeting, the interviews with each agent can be done without the presence of management personnel.
The best source of information on a managing agent are references from other associations relating to the company and the individual the agent proposes to assign to your property.
During the transition period, the ougoing management company must prepare a final accounting, including bank reconciliations, and pay the final bills.
Q–Each unit in our 21-unit condominium in the western suburbs has its own hot water radiator and radiant heating. The tube for the radiant heating is buried in the concrete floor.
Last year, and again this year, when the heating season began, water has appeared to be dripping down one of the support columns. The water freezes at the base of the column and appears to be damaging our common elements.
I am concerned that the damage is coming from a leak in the radiant heat tubing of a first floor unit that just happens to be owned by the association president.
However, the board, which is all female, does not take this problem seriously. They have not taken any action to either investigate the problem or mitigate damage to the concrete floor and support structure.
At the annual meeting, the president minimized the problem by saying that the building insurance would pay for repairs.
However, in my view, this is going to be an expensive and messy situation. Who is responsible for handling it?
A–The association property damage coverage won’t pay for repairs that don’t arise from a sudden loss. Hazard insurance does not cover damage caused by a gradual deterioration from water leakage or infiltration.
The board and its president have a duty to maintain the property.
This duty requires the board to investigate and hire a qualified contractor to repair any source of water infiltration that will damage either the common elements or the units.
The association president cannot resist conducting this investigation simply because it may involve some invasive testing of her unit. While the leak may in fact be arising from within the common elements, and not an individual unit, the board has a duty to stop any cause of water damage.
Gender is not an issue in this case; due diligence is.
———-
Mark Pearlstein is a Chicago lawyer who specializes in condominium law. Write to him c/o Condominiums, Real Estate Section, Chicago Tribune, 4th floor, 435 N. Michigan Ave., Chicago, Ill., 60611. Sorry, he can’t make personal replies.
