Summary

An insurance company can’t sue a condominium tenant in subrogation, even if they were negligent in starting a fire.

The Facts

The Declaration required the association to “obtain and maintain a … policy of all risk property insurance” for the association.  The Declaration also required the policy to name as insureds the unit owners and their bank mortgage holders (Mortgagees) and that “any insurance maintained by the association shall contain [a] ‘waiver of subrogation’ as to the Units and Mortgagees.”  Finally, the Declaration also prohibited the owners from obtaining fire insurance and required all occupants and tenants to comply with the Declaration.

One of the unit owners leased its commercial unit to the tenants (Defendant). The lease did not specify who would carry fire insurance. 
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Facts: The facts in the case of Forrest v. The Ville St. John Owners’ Association, Inc., No. 2018-CA-0175 (La. Ct. App. Nov. 7, 2018) are straightforward.  In March of 2016 there was a fire.  It damaged common element and the Forrest unit.  The Association had two insurance policies: one for Property and one for Community Association Management Liability Coverage.  The Property policy was issued by Lloyd’s of London. Lloyd’s paid on its policy, for both the common element and unit damages, but the funds were insufficient to repair the common elements and the unit.  So the Association repaired the common elements.

Trial Court: The unit owner, Forrest, filed suit against the Association alleging breach of fiduciary duty and various other claims under state law. 
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IMPRESSION: The ruling in Great Am. Ins. Co. v. State Parkway Condo. Ass’n, No. 17-cv-3083 (N.D. Ill. Sept. 11, 2018), should serve as a cautionary tale to Condo and HOA boards.

DETAILS: In Chicago, a unit owner of a condominium located at 1445 North State Street filed an Illinois state discrimination claim in 2007 against the State Parkway Condominium Association (“SPCA”) for failure to accommodate his hearing disability during SPCA Board meetings.  The SPCA defended the claim under its 2006-2007 Non-Profit Management and Organization Liability Insurance Policy (“policy) issued by Travelers Casualty and Surety Company of America (“Travelers”).

A settlement between parties was reached in September 2007; but six months later, the SPCA sued the same unit owner in an entirely unrelated matter.
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Issue:  If your association was destroyed by fire or some other hazard, and it did not make sense to rebuild, how would the funds be divided?

Problem.  Odds are that you don’t know the answer.  The fact that you don’t know should scare you.  Is every unit in your association worth the same amount?   I doubt it.  Do you each pay the same amount in assessments?  Does that control?  What does your declaration say about the distribution of insurance proceeds if the unit owners elect not to rebuild?  Do you understand what it says? Does it even make sense?
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In Illinois, a Court recently ruled on a Condominium Association’s attempt to charge back an insurance deductible to one of its members (Gelinas v. Barry Quadrangle Condominium Association, 74 N.E.3d 49 (2017)). This particular association had a fire originate in an owner’s unit resulting in damage to not only the specific unit, but the entire building. The Association made a claim with its insurance company and received reimbursement for the necessary repairs to be made. The Association then held a hearing and levied an assessment against the Unit Owner in whose unit the fire originated.
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Condominium associations and homeowner associations are sued every day. These suits can arise based on construction claims, contract claims, negligence claims and various alleged statutory violations – We all know about the Fair House Act!  Or the Wisconsin (or whatever state you are in) Consumer Act!  Associations seem to attract people who feel that they are entitled to something because they now live in an association.  Of course they are entitled to what the law and documents allow them, but for some that never seems to be enough.  Often these types of owners or residents make up stuff or read the internet until they find some article or statement that supports their point of view and then cite it as fact. Yes, we have all dealt with those people. However, despite the validity (or lack of validity) of any lawsuit, there are some basic steps that every association should follow once served or notified of a suit.
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It has been said that insurance is the only product that both the seller and buyer hope is never used. That certainly rings true when it comes to community Associations’ insurance policies, but it does not diminish the need for Associations to protect themselves and their unit owners from an ever-widening array of damages they could suffer. Wis. Stat. § 703.17 requires Condominium Associations to obtain insurance against potential hazards, but only discusses scope by saying that the Association must acquire insurance “for not less than full replacement value of the property insured against.”
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Governing Documents for Condominium and Homeowner Associations don’t age well. They are not like a fine wine.  They are more like cheap cheese.  Remember, they were likely written by a developer who really only cared about them until it had sold all of its units or lots (assume 10 years or less).  So if your documents were written before 2008, it is unlikely that they have anything in them to deal with:

  1. Emotional Support Animals;
  2. Drones;
  3. Short Term Rentals (AirBnB was founded in 2008 in San Francisco);
  4. Medical Marijuana; or
  5. Unit or Lot Owners buying insurance to cover a large insurance deductibles that could be assessed against them if their actions cause an insured loss.


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In Wisconsin condominium associations are required to insure all of the property (other than the personal property) of the unit owners. (See, Sections 703.17(1) and 703.02(14) Wis. Stat).  Many unit owners worry (needlessly I would contend) that their neighbors have improved their unit more than they have and then argue that they don’t want to pay the insurance for those improvements.  Ignoring for the moment that those improvements also likely increase the value of their neighbors unit and therefore increase the value of their unit, which they are more than happy to accept, this argument simply misses how insurance companies actually insure condominiums in Wisconsin.  The law requires all of the property to be insured.  The law requires that the insurance be paid as a common expense.  (Section 703.17(1) Wis. Stat).  Accordingly, arguing over who has to insure what, considering the clear language of the statute, wastes both the time and resources of an association.  However, there is something a board of directors can do to increase the insurance it provides unit owners without any material cost to the association.  To adequately explain where these savings can be obtained, I first need to explain how insurance companies currently charge premiums and pay condominium claims in Wisconsin.
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My points below exaggerate problems that I commonly see, but the advice is sound:

  1. “Are your three brain cells still talking to each other?” Knowing how to deal with difficult people is a prerequisite to property management. Don’t aggravate a situation by making a challenging person even more difficult to deal with – this won’t solve the problem. Attempt to always maintain a professional, positive attitude. We all fail or become less than we want to be at times. Forgive yourself and others, but even in forgiveness bad actions by unit owners have consequences.
  2. “This is the insurance company/policy you should approve.” Property managers are usually not licensed insurance brokers or agents, and their recommendation may be wrong. Does your association insurance cover you for those types of opinions if they are wrong? Property managers can certainly identify options.  However, the Board, ideally on the advice of an insurance committee, should be deciding on the amount and types of coverage purchased.
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