Contractually assumed liability may not be covered

Posted2/15/2014 1:01 AM

David M. Bendoff

Q. The property manager for our association was sued by a visitor to the property. The manager invoked the indemnification language in its management contract, and demanded that the association hire a lawyer to defend the claim against the manager. The association tendered the case to its insurance carrier. However, the insurance carrier denied the claim, stating that a contractually assumed liability was not covered. What is the impact of this?

A. Many contracts entered into by associations require the association to indemnify, to some extent, the other party to the contract from claims of third parties. This is universally the case as to management contracts. Your association learned the hard way that this contractually assumed liability may not be covered by the association's liability insurance policy.

Associations should consult with their insurance agent or broker whenever the association is required to indemnify a party in a proposed contract. The insurance professional should advise the association whether its insurance covers such contractually assumed liability or if an endorsement is available that would provide such coverage. If the answer is "no," the consequence of not having such coverage will be that the association will defend/indemnify the other party out of its own funds.

For an association to assume contractual liability to a third party without appropriate insurance is not prudent. In fact, it could be an outrageously expensive undertaking for the association and its owners.

Q. I am a unit owner in a townhouse-style condominium complex. It is my understanding the walkways and stoops for each unit are considered common elements under the declaration. The declaration provides that the association is responsible to maintain them. If a person falls on a stoop or sidewalk, and is injured, is the association liable?

A. The association has exposure to liability if the person fell as the result of some breach of duty to maintain the common element stoop or sidewalk. That is, the association is not an insurer, and is not strictly liable for all injuries suffered by a person who falls on the common elements. In general, an association would have exposure to liability if the association knew or should have known about a condition of the common elements that could cause injury, and if the association failed to take appropriate or timely action to repair the common element. These are questions of fact that are decided on a case-by-case basis if a matter goes to trial.

Periodic site inspections by the board and/or property manager can be an important tool to identify common element defects and to initiate the timely repair process to diminish exposure to liability for personal injury.

Q. I live in a townhouse-style common interest community association in the West suburbs. The declaration was recorded in the early 2000s. The declaration states that the developer does not have to turn over control of the association to the owners until all of the units have been sold.

I understand that the Common Interest Community Association Act requires turnover to occur within 60 days after 75 percent of the units have been sold or three years after the declaration is recorded; whichever occurs first. Ninety percent of the units have been sold. Is the developer now required to hold the election of the initial board?

A. It was likely intended that the provisions of the Common Interest Community Act to which you refer -- section1-50(b) -- were to apply to declarations recorded after the effective date of that legislation, which was after the declaration for your association was recorded. The law refers to a "compliance" deadline; however, it does not have clear applicability language as did the Condominium Property Act when it was significantly revised in 1978.

As a result, there is some ambiguity here and a definitive answer to your question needs to come from the courts or the legislature.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.

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