Unit-to-unit water damage presents tangled insurance web

Q: My upstairs neighbor's toilet leaked and caused water damage to my condominium unit. A plumber concluded that the leak was caused by the seal around the bottom of the toilet was old and deteriorated.

My neighbor submitted a claim through his insurance company, but the claim was denied. His insurance company denied the claim due to outdated insurance language in our association’s original declaration and bylaws which have not been updated for years. My question is not about the insurance company’s denial of my neighbor’s claim, but about whether our management company should have sent updated bylaws, and is the management company required to update the bylaws as the condominium laws are amended?

A: Preliminarily, the insurance claim issue is going to be governed by Section 12 of the Illinois Condominium Property Act. The provisions of Section 12 of the act are applicable to the association, whether or not the association’s declaration or bylaws contain the updated statutory language.

With regard to your management company question, management can only provide copies of the association’s recorded declaration and bylaws that are in effect at the time of request. If the bylaws have not been updated by the association, then management would not be able to provide updated bylaws to the insurance company. It is not within a management company's responsibility or authority to update an association’s bylaws.

Rather, updating the association’s declaration and bylaws to conform to the Condominium Property Act would need to be accomplished by the association through its board, with the assistance of legal counsel, not the management company.

The situation here, though, is a subtle reminder to associations that it is a very good practice to periodically have the governing documents reviewed and updated to conform to current provisions of the Condominium Property Act or the Common Interest Community association Act, as applicable.

Q. Damage was done to my condominium unit when a pipe from the unit above mine broke. I spoke to the owner’s insurance company, and they told me that they are not responsible because there was no negligence.

A. Unit-to-unit water damage situations are very common and can be legally complicated — primarily because each situation is unique. In general, with respect to the damage to units caused by a water leak from another unit (depending on what was damaged and the amount of the damage), the board may be advised to at least notify or formally open a claim with the association’s insurance carrier. The condominium association’s insurance is generally responsible for paying a covered loss to bare walls, floors and ceilings of the units (but not floor covering or decorating/wallpaper or personal property). The primary question, therefore, is often whether the loss is even covered by the association’s insurance.

This raises an important point: It is an often-misunderstood distinction between the association’s/owner’s responsibility to maintain, repair, or replace a particular part of the property vs. which party has the insurance responsibility for that same part of the property.

While the association may not be responsible for the cause of the damage that gives rise to a loss (like a leak from one unit to another), the casualty loss may trigger coverage under the association’s master insurance policy. So, if there was damage to the common elements and/or the units (e.g., bare walls, floors and ceilings of a unit) from a water leak (even if the association was not negligent), the association’s insurance may be triggered and a claim may have to be made on behalf of the owner suffering damage. The damage not covered by the association’s insurance is a matter between the unit owners and their individual insurance carriers.

Fortunately, the Condominium Act offers some financial protection to condominium associations. In the case of a claim to the association’s insurance for damage to a unit or the common elements, Section 12 of the Condominium Act authorizes the board to pay the deductible amount as a common expense, or after notice and an opportunity for a hearing, assess the deductible amount against the owner who caused the damage or from whose units the damage or cause of loss originated, or require the unit owners of the units affected to pay the deductible amount. The owner of the unit who caused the damage or from whose unit the damage or cause of loss originated here could be responsible for the association’s deductible.

As you can see, unit-to-unit water damage repair responsibility vs. insurance responsibility can be complicated. As a result, boards are advised to seek legal counsel from the association’s attorney to navigate and resolve the situation properly.

• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.