Supreme Court to Hear Case on Association Rights

Last month the Supreme Court of the United States agreed to consider the case of Mariner’s Cove Townhomes Association v. United States, a decision that could have broad implications on the 60 million Americans living in community associations as well as the directors, officers and managers who oversee them.

The case involves a condo development in New Orleans that had a pumping station installed nearby after Hurricane Katrina. After installing the pumping station that would prevent further flooding in the area, the federal government decided that the proximity the station was to a number of the Mariner Cove Townhomes had substantially destroyed the value of many of those homes.  The government agreed to pay the owners fair market value for their homes. After purchasing 14 of the units closest to the station, the Army Corps of Engineers demolished those buildings.

The association brought suit to recoup the lost assessments that came from eliminating 14 of their 58 units.  Mariner’s Cove argued that the destruction of those units precluded the association from realizing the ongoing stream of income from the association dues.  Mariner argued that its interest in the units meant they were owed payment by the government to compensate for them destroying the buildings.

The U.S. Court of Appeals for the Fifth Circuit ruled for the government, stating that “the right to collect assessments, or real covenants generally” are not subject to the fifth amendment’s requirement that “private property be taken for public use, without just compensation”. The case was appealed to the Supreme Court who agreed to hear the arguments.

The matter brings new issues and exposures for those managing associations, as board members have a fiduciary responsibility to protect the assets of the organization. Contact today to discuss better protecting your board members in a time of increasing regulation and litigation.

Balcony Collapses, Dog Bites and Other Risks

Property Manager Sued After Balcony Collapse

At the University of California Santa Barbara, the collapse of a balcony has led to many injuries – and many lawsuits.  At least six – and possibly more – students were injured as a balcony collapsed on the first floor patio and onto many students attending a party at the location.  Two of the injured parties have already filed suit against the property manager and owner of the property.  Their suits are alleging that poor maintenance, termite damage and wood rot caused the balcony to cave in.  The property manager is explaining that the party led too many people to populate the balcony, which led to its collapse.

While the facts have not been tried, this matter illustrates the fact that property managers can be brought into a lawsuit and possibly held liable for injuries that occur on the properties they manage.  Maintenance and repairs are typically part of a service agreement and it is a common practice to claim that failure to do these thing resulted in damage or injury.  It is important for property managers as well as associations to be named on a building’s liability policy.  Property Managers should also consider their own separate policies or umbrella policies to cover excess damages.

Association Board and Management Liabilities

The liability a property manager or a condo association board faces is often much bigger than one might expect.  And the things that give rise to lawsuits can be surprising and not intuitive.  Here are a few examples:

Dog Bites – Pet-friendly buildings can have higher occupancy ratios, so many condo by-laws and property managers allow them.  But an unfriendly dog can pose big problems for its owner, the board and the management company.  If a dog attacks another person, the management and board members can be brought into the lawsuit for failing to maintain fences, or failing to protect owners from a dog known to be vicious.  The board may also be sued simply because they have “deep pockets” and an insurance policy that can pay out money.  It is important to monitor pet policies and address mean animals before they become an issue.

Rental Restrictions – Often, the by-laws of a condo association contains a clause stating how many units can be rented at a particular site.  In general, limiting rentals can be of benefit to condo buyers.  It will give them assurance that the property will not become an apartment building.  It may also help with future refinancing efforts as mortgage lenders often will not make a loan unless a certain number of units are owner-occupied.  Finally, it may help with procuring insurance for the condo building  as many insurers have a minimum level of units which must be owner-occupied, as well.  The danger a condo board faces comes when trying to change the original by-laws to restrict the number of rentals.  If a board changes the rental policy and suddenly a condo owner is unable to rent their unit, the unit owner may decide to file a lawsuit against the condo association’s board.  It is best to bring a change to rental policies to a full vote of each unit owner.

Criminal Activity – Criminal activity at a condo building could place liability on the property manager.  Failure to provide good lighting, failure to repair alarm systems, or failure to respond to complaints of suspicious activity may all lead to blame being placed on the property management firm.

Condo Associations and Terrorism Coverage

One of the coverage decisions condo associations face, but often don’t completely understand, is terrorism insurance. TRIA (Terrorism Risk Insurance Act) coverage is often purchased without hesitation due to the low cost or lack of a broker explaining it’s purpose.   Brokers may also simply add the cost into the price of the package  insurance premium instead of providing it as a separate option.  Another hurdle is that a TRIA rejection letter must be signed in order to decline the coverage – which many associations simply don’t want to do.  According to a 2012 congressional report approximately 60% of commercial insurance buyers purchase it.

Most associations assume not buying the coverage will allow an insurance company to deny any claim that could be labeled “terrorism” – but that is not the case.  Terrorism is broadly defined as an event dangerous to human life, property, or infrastructure that was committed as part of an effort to coerce U.S. civilians or to influence the policy or conduct of the U.S. Government. However, just labeling something an act or terror does not mean that it is terrorism in the eyes of the insurance policy.

The coverage (or exclusion) is only triggered when the Secretary of Treasury deems an event an act of terrorism.  The Secretary of State and Attorney General must then agree with the decision. The Boston Marathon bombing, which the President defined as terrorism, was not deemed as such for insurance purposes and therefore not subject to the terrorism insurance program* – meaning a condominium building in the area who did not purchase terrorism coverage would still likely have their claim paid – despite the newspapers and the president labeling it terrorism.

The insurance-terrorism issue started in 2002 when President Bushed signed the act into law. Prior to 9/11, “war” was a standard exclusion on insurance policies, but terrorism was not.  In the year that followed many companies began excluding coverage for any act of terrorism.  The TRIA program provides a federal backstop for insurance companies who may be squeamish about the terrorism risk by taking a share of the risk. The law has been extended several times since then and a ten year extension is being debated. Currently for the government backstop to kick in the insurance industry must experience $100 million of losses. At that point the government and the insurance company would begin to split the payments to those injured.  The government has capped their total reimbursements at $100 billion.

How much a company charges for the coverage can vary greatly. A few throw it in for free, many charge a nominal sum and several tack on a hefty surcharge to provide the coverage. As an insurance buyer, one should think through the cost when examining the coverage.  It may also help to consider where one’s condo building is located.  If it is in rural United States, the occurrence of a $100 million loss from terrorism is unlikely.  On the other hand, for a high rise in a major metropolitan area may find that threshold much easier to cross.

Before buying any insurance, it is important to understand what the coverage is and when it might be used.  Contact to discuss your association’s insurance plans and if there are areas you can save money.


*For the Secretary of Treasury to consider an act terrorism it must have caused at least $5M in damages, which the Boston bombings did not likely cause.

April Showers bring May Claims

The Chicago area has seen the second “rare” flood in two years. Many condominium owners in the city are facing the prospect of an expensive cleanup and painful insurance claims. This is an important time to take a look at the key water related coverages in association policies.

Water can enter buildings through two main sources, a ground water flood or through sewer backup. While the impact can often be the same, determining the source is key to determining coverage.

Condo Association Flood Insurance

Flood is generally defined as the “rising, outflow, and/or overflow or water from a water course or body or water (natural and/or man-made), including but not limited to waves, tidal water, tidal waves or spray from any of these, regardless of whether driven by wind or due to other causes”. Flood insurance is backstopped by the federal government through the National Flood Insurance Program (NFIP). The program sets maps of flood prone areas, and condo associations who find themselves in one will find their mortgage company will generally require the purchase flood insurance. If not in a flood zone, most insurance buyers will likely not be offered the coverage unless they ask.

The many flood prone rivers of northern Illinois are surrounded by flood zones but several areas of the city are not. Most people forget that Chicago was originally a marshland and has been built on what is, in essence, a drained swamp. Because of the flat geography and abundance of concrete that prevents adequate run off, flooding does happen well away from rivers.

This means that a condominium association should carefully assess whether they should carry flood insurance for their property, even if they live outside a mandatory flood zone.

Sewer Backup

Sewer backup is often defined as resulting from “water or sewage that backs up or overflows from a sewer, drain or sump”. Many condo association insurance companies either exclude or sublimit this coverage. Even a small amount of water can necessitate massive remediation costs since damage to wood, drywall and carpet is expensive to repair when the threat of mold or fungus is imminent.

Chicago’s sewer woes are an interesting history lesson. The city streets, sidewalks and many building were raised several feet in the 1850s and 1860s to install modern sewer pipes. The Chicago River, where untreated sewage is dumped to this day, was reversed in 1900 to improve the water quality in Lake Michigan. Later in the mid-1970s the Metropolitan Water Reclamation District began what is commonly referred to as the “Deep Tunnel Project” to divert overflow water into a series of tunnels and reservoirs during storms. The tunnel projected is not projected to be completed until 2029. The challenge of dealing with water during storms has not been solved and will continue to be a problem.

Knowing how your association’s insurance is worded and whether any sublimits are adequate can end up saving thousands of dollars in the event of water damage from a sewer backup.

Other Condominium Water Issues

Another point to note, although it is not a common occurrence, is that several smaller insurance carriers exclude coverage for water damage from frozen pipes and many others exclude damage from the mold that often follows. Many condominium associations have found their water damage claims initially covered only to later face later bills for uncovered mold cleanup.

Contact today to discuss how to improve your current coverage and protect your association against the costs of floods, sewer backups and other issues that torment the greater Chicago area.

Co-Op Discrimination Costs

A New York condo blog has an article about the legal costs volunteer condo and co-op board members can personally incur defending allegations of discrimination.

Litigation costs and rising and creative attorneys continue to find new ways to go after board members personally. Contact today to ensure your directors and officers insurance is adequate to protect the association reserves as well as the assets of the individual board members.

Vague Coverage Clarified by Court Action

A Washington apartment complex owner brought suit against his insurance company for their refusal to pay attorney’s fees when the apartment owner settled an underlying lawsuit.  The insurance company agreed to the settlement, but was silent on whether attorney’s fees would be part of the money they would pay.  Because of this, they initially refused to pay attorney fees.

This week, a Washington appeals court  ruled that the silence did not give the insurance company the right to deny coverage of the attorney fees.  This sets a strong precedent for other insurance companies. explains that there are times when a condo association policy holder and an insurance company may be at odds over certain actions.  This is the time when an expert broker is needed to act as an intermediary and liaison for the policy holder.  As an independent insurance agency, we act only on our client’s interests and fight for our clients.  Contact us today to get started with a complimentary review of your current insurance program.





Suit Against Association’s Board from Hurricane Ike

The owners of five hurricane damaged home claim FEMA’s and Galveston’s buyout offer was sabotaged because home owner association’s board members thought it would hurt their property values.

The full story is available here.

Contact today to discuss improving insurance coverage for the costs of litigation.

Illinois Homeowners Associations have Power to Ticket Drivers

The Illinois Supreme Court ruled that a homeowner’s association can enforce its rules – even if that means pulling over people speeding through their subdivision and writing them a ticket.  In Poris Vs. Lake Holiday Property Owers Association, the association hired a private officer who lacked training or certification to enforce the association rules and keep residents safe.  The officer pulled over Mr. Poris who then sued.  The judge in the case reasoned that an association is allowed to enforce its rules and that the court “generally [does] not interfere with the internal affairs of a voluntary association.” reminds all associations – whether enforcing traffic laws or not – that lawsuits against an association can occur frequently.  It is important to maintain adequate insurance to protect against lawsuits, which can be brought against your association or the members of the association’s board.  Contact us today for a review of your insurance policies.





Condo Board Sues Owner over Bedbugs

A condominium in Evanston IL, just north of Chicago, is suing one of the unit owners over not treating bedbugs in his unit.

After bedbugs were found the units underwent several rounds of extermination, with the defendent’s unit being the worst infected. When he stopped returning calls to the exterminators the association sued the unit owner.

Contact today to insure your association against the costs of litigation.

Insurer Wins Case over Deck Collapse

During a party in 2003 in a Chicago apartment building, an overcrowded deck collapsed and killed thirteen people. Ten years later litigation is still playing out, the most recent development involving the building’s insurance company. The disagreement is over whether the collapse was a single “occurrence” or multiple “occurrences”. The policy the building carrier provided $1M in liability per occurrence, with a $2M  maximum limit per policy year.

The insurer, First Specialty, won the argument to limit their payments to $1M. Although the building owner was able to settle early, it is still possible for the owner to be help personally liable if insurance limits are not adequate.

Umbrella insurance provides excess coverage above the standard primary condo limits and is relatively inexpensive. recommends all clients explore these extra limits.