Illinois Appellate Court Decision Reinforces Condo Association’s Right to Assess Deductible After Fire Damage

Illinois Appellate Court Decision Reinforces Condo Association’s Right to Assess Deductible After Fire Damage

Illinois condominium associations can be placed in the difficult position of balancing equitable treatment of unit owners with fiscal responsibility following unexpected damage to the property. A recent decision by the Illinois Appellate Court provides critical guidance on an association’s authority to recoup insurance deductibles from a unit owner in circumstances where the damage originates from that owner’s unit. Gelinas v. Barry Quadrangle Condominium Association, 2017 IL App (1st) 160826, affirms the association’s right to assess a $10,000 deductible following a fire that started in a unit owner’s home and caused damage to the building’s common elements. This article will discuss the court’s decision in Gelinas and provide practical takeaways for community associations.

Background

The plaintiff, Matthew Gelinas, owned a condominium unit at Barry Quadrangle in Chicago. In June 2012, a fire broke out in Gelinas’s unit, causing damage to portions of the building, including the common elements. The Barry Quadrangle Condominium Association filed an insurance claim and received approximately $192,000 from its insurer. This amount represented the actual cash value of the loss less the Association’s $10,000 deductible.

The Association subsequently assessed Gelinas the $10,000 deductible, citing the fire’s origin in his unit. Gelinas paid the deductible under protest and filed suit against the Association and its Board of Directors. His claims included breach of contract, breach of fiduciary duty, imposition of a constructive trust, and a request for punitive damages. He also sought access to certain records under the Illinois Condominium Property Act.

At the heart of the dispute was whether the Association could lawfully assess the $10,000 insurance deductible to Gelinas under both the Illinois Condominium Property Act and the Association’s governing documents.

Gelinas argued that the deductible was improperly assessed because the Association, in his view, had not actually paid the $10,000 out-of-pocket. He claimed that the insurance proceeds received exceeded the cost of repairs, implying the Association had effectively profited from the insurance payout and was not entitled to seek reimbursement from him. However, the Association countered that the insurance payout did not fully cover the restoration costs and that its governing documents, when read in conjunction with the Illinois Condominium Property Act, allowed it to assess the deductible to Gelinas. The trial court ruled for the Association and found that the Association properly charged back the deductible to the plaintiff under 765 ILCS 605/12 of the Illinois Condominium Property Act.

Court’s Analysis

The Illinois Appellate Court upheld the trial court’s dismissal of Gelinas’s claims, siding with the Association on statutory and contractual grounds.

1. Statutory Authority under Section 12(c) of the Act

765 ILCS 605/12(c) of the Illinois Condominium Property Act provides as follows:

The board of directors of the association may, in the case of a claim for damage to a unit or the common elements, (i) pay the deductible amount as a common expense, (ii) after notice and an opportunity for a hearing, assess the deductible amount against the owners who caused the damage or from whose units the damage or cause of loss originated, or (iii) require the unit owners of the units affected to pay the deductible amount.

In this case, the fire undisputedly originated in Gelinas’s unit, and he was provided both notice and a hearing before the assessment was finalized. While Gelinas argued that 765 ILCS 605/12(c) of the Illinois Condominium Property Act is permissive and that an association must affirmatively adopt its provisions, the court rejected this interpretation. Instead, the court found that 765 ILCS 605/12(c) of the Illinois Condominium Property Act authorized the Association to assess the deductible without requiring it to incorporate the statute’s language into its governing documents expressly.

2. Contractual Authority under the Association’s Bylaws

The Association’s bylaws included a provision stating that when damage is caused by the act or neglect of a unit owner, that owner must pay for the damage “to the extent not covered by insurance.” Gelinas attempted to argue that the term “not covered by insurance” referred only to damages not within the scope of the insurance policy, not merely amounts unpaid due to a deductible. The court disagreed, finding that the $10,000 deductible constituted a cost not covered by the policy. As such, the court held that the Board acted within its authority when it assessed the deductible to Gelinas.

3. Record Inspection Claim Also Rejected

In addition to challenging the deductible assessment, Gelinas also alleged that the Association failed to comply with his records request under 765 ILCS 605/19 of the Illinois Condominium Property Act. The court found that his records request, issued eight months after he had already filed the lawsuit and initiated discovery, would have required the Association to produce the same documents twice. In light of the duplicative nature of the request and the pending litigation, the court held that the Association was not obligated to respond to the records demand separately under the Illinois Condominium Property Act.

Practical Takeaways for Associations

1. Associations Can Charge Deductibles to At-Fault Owners

The Gelinas case affirms that condominium associations in Illinois may assess insurance deductibles to unit owners when the cause of damage originates from their unit, provided they comply with the notice and hearing requirements under 765 ILCS 605/12(c) of the Illinois Condominium Property Act. Associations should follow proper procedural steps when charging a deductible, particularly documenting notice and hearings.

2. Governing Documents and the Illinois Condominium Property Act Work Together

Even if an association’s declaration or bylaws do not mirror the exact language of 765 ILCS 605/12(c) of the Illinois Condominium Property Act, the court may still find authority to assess a deductible when the documents include similar or complementary provisions. Boards should ensure their documents align with statutory authority and do not conflict with the Illinois Condominium Property Act.

Conclusion

The court’s decision in Gelinas confirms that condominium associations can assess deductibles to unit owners when the damage originates from that unit. Associations can rely on the language outlined in 765 ILCS 605/12(c) of the Illinois Condominium Property Act when assessing these deductibles. For additional protection, condominium associations should review their governing documents with an attorney to confirm that the governing documents do not conflict with the provisions of the Illinois Condominium Property Act and provide for the same remedies as 765 ILCS 605/12(c) of the Illinois Condominium Property Act. In the wake of a property loss event, acting promptly, documenting decisions, and following procedural requirements under the Act can help prevent costly litigation and protect the interests of the community as a whole.

If your association has questions about assessing insurance deductibles, interpreting governing documents, or responding to records requests, the attorneys at Hirzel Law, PLC are experienced condominium and homeowners association attorneys here to help.

 

Jeremy Fernando is an Associate Attorney at Hirzel Law, PLC., Mr. Fernando is licensed to practice law in the State of Illinois. He concentrates his practice on community association law, condominium law, homeowners association law, and real estate law. Mr. Fernando’s legal career includes serving in corporate practice where he represented insurance companies and institutional investors in U.S. and cross-border private placements of securities, including transactions in the Netherlands, England, Ireland, Australia, and Germany. Mr. Fernando earned his Juris Doctor from Marquette University Law School, where he graduated with honors and ranked in the top 15% of his class. He also served as an Associate Editor of the Marquette Law Review. Mr. Fernando is committed to providing effective legal representation to his clients and is passionate about helping communities navigate complex legal challenges. He may be reached at 312-552-7669 or jfernando@hirzellaw.com.