Several changes in 2022 Illinois case law have impacted the management of condominium, homeowner (HOA), and townhome community associations. Below is an amended summary our law firm has compiled with implications of these legal updates.

If you are board member, property manager, or community association leader with questions about these recent case law updates, do not hesitate to contact our law firm.

Please call 855-537-0500 or visit www.ksnlaw.com.

 

Granville Tower Condo. Ass’n v. Escobar, 2022 IL App (1st) 200362

  • The association’s board of directors passed a resolution adopting a special assessment in the amount of $4,150,000 to be levied upon the owners of all condominium units within the association according to their percentage of ownership.
  • Shortly thereafter, the association filed suit against a unit owner for unpaid assessment. Separately, a complaint for foreclosure was filed by her mortgage company. Hilda Escobar was named the highest bidder in the foreclosure auction, and the sale was confirmed.
  • Escobar filed suit against the association.
  • The Court held that a foreclosure purchaser was liable to pay special assessments that were levied prior to the foreclosure sale. Escobar argued that the special assessment became due when it was first imposed and, therefore, was extinguished by the foreclosure sale. The Appellate Court disagreed and stated that because the condominium association would not have a lien until the amounts were due and not paid, the association’s lien rights for monthly payments still due and owing were not extinguished by the foreclosure sale.

 

Holtgren v. 260 Jamie Lane Condominium Association, 2022 IL App (2d) 210440-U 

  • Holtgren was the original developer of the condominium and drafted the declaration for the condominium at issue.
  • The developer filed the lawsuit in December 2019, seeking a declaration that no assessments were due on the unfinished units.
  • The developer tried to argue that it was unfair to be assessed for units that did not benefit from using the common elements. The Court also pointed out that it would be “unfair” to the other unit owners if they were responsible for paying the share of assessments due on the developer’s condominium units.
    • The Court also pointed out that the developer still owned over 50% of the units by percentage and could sit back and not develop the units and claim that it did not have to pay assessments under its theory asserted in the case.

 

The Village of Downers Grove v. Village of Square III Condo. Ass’n, 2022 Ill. App. 2d 210098 (Ill. App. Ct. 2022)

  • The Village fined the Condominium Association for failing to submit an annual fire prevention system inspection report as required by its Fire Prevention Code. The Village argued that even though the fire prevention system installed in the condo buildings in the 1990s was grandfathered from having to upgrade to meet the new code, it was still required to be inspected yearly.
  • The condo association argued that it was exempt from having to have a fire prevention system at all because of the way the buildings were constructed.
  • The Village replied that once a fire alarm system was installed and approved, it could not be downgraded and was subject to the annual inspection requirement applicable to all existing buildings.
  • The appellate Court found that even if the Fire Prevention Code did not require a building to have a fire protection system, once an approved system was in place, the Fire Prevention Code required the system to be tested annually and a report to be submitted to the Village.

 

RSUI Indemnity Company v. Fireside Terrace Condominium Association Inc. et al., case number 1:22-cv-00014

  • Kenneth Swiatek, a former president of Fireside’s board of directors, sued the Buffalo Grove, Illinois, homeowners’ association and its current board members last year, asserting a host of claims against them, including self-dealing, mismanagement, and violating state condominium laws.
  • The former board president alleged that Fireside didn’t reimburse him for nearly $17,000 he advanced the board while president, that board member engaged in self-dealing and that they violated the association’s declarations and Illinois’ Condominium Act by issuing excessive fines against Swiatek.
  • RSUI filed the present action in January, seeking a declaration of no coverage under a $1 million directors’ and officers’ policy it issued to Fireside, citing the insured-versus-insured exclusion.
  • Citing the Central District of Illinois’ 2010 ruling in Strategic Capital Bancorp Inc. v. St. Paul Mercury Insurance Co. and the Seventh Circuit’s subsequent affirmation, RSUI said an insured-versus-insured exclusion in a D&O policy applies whether an insured person, such as Swiatek, brings claims against an insured organization as an individual or as a trustee.

 

4043 S Drexel Condominium Association v. Burke, No. 1-21-0666 (Ill. App. Ct. Sept 6, 2022)

  • Burke purchased a unit in 2006, a series of corporate entities for which Burke served as an officer bought seven other units to rent. These entities owned a total of about 56% of the ownership interest in the condominium.
  • The declaration provided for the association to initially be managed by a three-person board of directors appointed by the developer until the developer sells 75% of the units or three years after the declaration’s recording. After such time, the unit owners were to elect a five-person board at each annual association meeting or a special meeting. In addition, a special meeting was required to be called for the purpose of filling any vacancy on the board no later than 30 days after a petition signed by owners holding 20% of the total votes requesting a meeting.
  • In April 2016, Burke announced by email that an association meeting would be held on April 23 for the purpose of electing a three-person board. At the meeting, three Unit Owners were elected to the board.
  • Conflicts arose between owners and Burke regarding the condominium’s management and finances and Burke’s rental of units he owned or controlled. Burke rented more units than was permitted by the declaration without the board’s consent.
  • Burke resigned from the board due to the conflict, and two-unit owners emailed all of the unit owners and conducted a meeting where they voted electronically after the meeting to adopt a new Board.
  • The Appellate Court of Illinois held that an association did not have standing to sue because a properly elected board did not authorize the lawsuit. The association did not properly call meetings, conduct elections, or amend the declaration.

 

Morgan’s Orchard Lake Homeowners’ Association v. Morgan, No 3-22-0006 (Ill. App. Ct. Sept 27, 2022) 

  • In 2019, the association filed a collection action against Morgan and his property due to his failure to pay assessments. Morgan responded that no assessments were due because the assessments were not validly adopted pursuant to the community’s declaration.
  • The declaration required the association to provide a copy of the proposed annual budget to each owner at least 30 days prior to the board’s adoption of the budget. The declaration further provided that the amount of the annual assessment was to be determined by the owners at any annual or special meeting called for such purpose, but the assessment amount shall in no case be less than an amount determined by the board as necessary to defray the association’s costs and expenses in meeting its obligations under the declaration and bylaws for the following year. Morgan argued that there had been no meeting of the membership to vote on and approve annual assessments. Although the owners could attend board meetings as observers, only board members could vote at board meetings.
  • In 2017, the association affirmatively elected to be covered by the Illinois Common Interest Community Association Act. The act requires the association to deliver a copy of the proposed annual budget to each owner 30 to 60 days prior to its adoption by the board. The board has the right to set the annual assessment rate, but owners holding at least 20% of the votes can demand a special meeting be called for the purpose of allowing the owners to vote on the budget and assessment if the proposed assessment would increase by more than 15% over the prior year. The proposed budget and assessment are deemed ratified unless owners holding a majority of the votes at the special meeting vote to reject the proposed budget and assessment.
  • The association contended that, after it adopted the act, budget approval by the owners was not required unless the proposed assessment increased by more than 15% and a special meeting was demanded by the requisite number of owners. In February 2018, the association notified the owners of a board meeting in March at which the board would vote on the 2018 budget, which had increased by more than 115% over the prior year. Morgan was a board member and attended the meeting but didn’t vote. No owners petitioned for a special meeting for the purpose of the owners voting on the budget or assessment. The association followed the same procedure for the 2019 budget.
  • Morgan paid the first quarterly assessment for 2018 but did not pay anything thereafter. He acknowledged that the board had the authority to adopt the budget but contended that the board could not approve the assessment amount because the declaration unambiguously required owner approval. The trial court granted judgment in favor of Morgan, finding that the act’s procedure did not nullify the declaration’s requirement. The association appealed.
  • The appeals court agreed, finding that the declaration plainly indicated that the assessment rate was to be determined by the owners voting at a meeting called for that purpose.

 

Cambridge Mutual Fire Insurance Company v. Bell & Arthur Condominium Association, No. 18 C 05951 (N.D Ill. Oct. 21, 2022)

  • Bell & Arthur Condominium Association (association) governed a condominium in Chicago. Alan and Nawwar Alhomsi (collectively, the owners) owned a unit in the condominium.
  • The owners filed suit against the association and members of the association’s board of directors, alleging mismanagement of the condominium and various other misconduct (the underlying case). The association filed a claim with its insurance carrier, Cambridge Mutual Fire Insurance Company (Cambridge). Cambridge filed suit against the association and the individual directors, seeking a determination that it had no duty to defend any of them in the underlying case.
  • The insurance policy included business liability coverage under the main policy as well as directors and officers liability coverage under an endorsement. Under the business liability coverage, Cambridge had a duty to defend both the association as well as its officers and directors against liability arising out of bodily injury, property damage, or personal injury. To trigger coverage, an “occurrence” must have caused the bodily injury, personal injury, or property damage. “Occurrence” was defined as an accident, including continuous or repeated exposure to substantially the same general or harmful conditions.
  • Cambridge asserted that the owners did not allege any type of injury or damage to trigger coverage under the policy. Among other things, the owners alleged that the association violated the Chicago Municipal Code by failing to provide hot water. Ever since they moved into the unit in 2014, the owners had problems with hot water. The problems gradually worsened until a defect in the main pipes was discovered. They claimed the association failed to fix the problem or evaluate whether the boiler should be replaced. The owners alleged the boiler failed in the middle of winter, causing them to lose hot water and suffer sickness, distress, and exposure to cold weather.
  • The association contended that such allegations qualified as property damage and bodily injury. The court disagreed, finding the owners did not allege that an accident occurred as required for an “occurrence.” The owners did not allege what caused the boiler to fail. Their allegations were mostly about the boiler being replaced at the wrong time rather than the damage to the boiler causing their injury. The condominium documents required the association to maintain, repair, and replace the boiler from time to time. Something that is expressly contemplated cannot qualify as an accident because it is not an event that is unforeseen, unintended, or unexpected.
  • The contractor said the boiler replacement work would damage the owners’ unit, and the association agreed in advance to repair the damage. The owners claimed the association failed to repair the damage. Nonetheless, such intended and expected property damage does not qualify as an accident. Thus, Cambridge had no duty to defend either the association or the directors under the business liability policy.
  • However, the directors and officers endorsement had a different standard for coverage. The endorsement insured against liability arising from the “wrongful acts” of the “insured.” Cambridge argued that the endorsement imposed a duty to defend only the directors and not the association. However, the endorsement used the term “insured” in lowercase and without quotation marks, and the term was not defined in the endorsement’s definitions section. The endorsement stated that words and phrases that appeared in quotation marks had special meanings. The court determined this implied that words without quotation marks had no special meaning. The court applied the definition in the main policy, which defined “insured” as the association along with its officers and directors.
  • The court held that breach of contract claims did not qualify as “wrongful acts,” but some of the owners’ other claims potentially did qualify. The owners claimed the directors adopted rules through procedures that violated Illinois law. Cambridge contended that all of the claims involved alleged intentional and fraudulent conduct, which was not covered by the policy. However, the endorsement specifically defined “wrongful acts” as including “any negligent act, any error, omission, or breach of duty.”
  • There was disagreement about whether the word “negligent” was intended to modify only “act” or also “error, omission, or breach.” However, the court found the allegations would be covered under either interpretation. An alleged failure to follow rigid procedures and laws in adopting rules qualified as both “any error” as well as a “negligent act.”
  • The court noted that even weak claims implicated an insurer’s duty to defend, and the claims in the underlying case must be liberally interpreted in favor of providing coverage for the insured. Also, if one claim in the underlying case triggers coverage under the policy, the insurer must defend the insured against all of the claims. Accordingly, the court denied Cambridge’s motion for summary judgment (judgment without a trial based on undisputed facts).

 

Channon v. Westward Management, Inc. No. 128040 (Ill. Nov. 28, 2022)

  • Harry and Dawn Channon (the Channons) owned a unit in the Kenmore Club Condominium in Cook County, Ill. Kenmore Club Condominium Association (association) governed the condominium. Westward Management, Inc. (Westward) was the management agent hired by the association.
  • The Channons decided to sell their unit and entered a sales contact with a potential buyer. The Illinois Condominium Property Act (act) requires a unit seller to obtain specified documents from the association’s board of managers, and the board or the association may charge the seller the direct out-of-pocket cost of providing such information. The association directed owners to obtain such documents from Westward. Westward charged the Channons a $245 fee to supply the documents. The Channons thought the $245 fee was excessive but were forced to pay it to satisfy their obligations under the act.
  • The Channons sued Westward, alleging that Westward violated the act and the Consumer Fraud and Deceptive Business Practices Act by charging unreasonable fees for the statutorily required documents. Westward contended the act did not create a right for individuals to sue a manager and moved to dismiss the case.
  • The trial court denied Westward’s motion to dismiss. However, it agreed to certify a question of law to the Illinois Appellate Court (appellate court). This put the case on hold until the appellate court answered the legal question. The question posed was: Did the act create an implied cause of action in favor of a unit seller against a manager, as an association’s agent, based on allegations that the manager charged excessive fees for the production of disclosure information required by the act?
  • Illinois has a four-part test for determining whether a statute creates an implied right of private action by an individual. The court is to examine whether: (1) the plaintiff is a member of the class the statute was intended to benefit; (2) the statute was designed to prevent the plaintiff from suffering the injury he or she incurred; (3) the statute’s purpose is consistent with the creation of a private right of action; and (4) it is necessary to imply a private right of action to provide an adequate remedy for the statutory violation.
  • The appellate court concluded that Westward could be liable under the act if it actively participated in breaching the association’s duty because Westward contracted with the association to act as its agent for the purpose of fulfilling its statutory duties. The appellate court determined that unit sellers were members of the class the statute was intended to protect because sellers typically lack personal access to the mandated disclosure documents. Because Westward allegedly charged fees in excess of the direct out-of-pocket costs permitted by the act, the Channons potentially incurred the type of injury the statute was designed to prevent. Westward filed a petition for leave to appeal to the Illinois Supreme Court (supreme court), which the supreme court granted.
  • The supreme court noted that the act placed a ceiling only on the fee charged by the association, and no mention was made of any fees charged by a manager. In this case the association chose not to fulfill that duty itself, instead contracting with Westward to provide the requisite information. The Channons did not pursue a claim against the association and chose to sue only Westward.
  • The supreme court found it unimaginable that the mandated disclosures were intended to protect anyone other than a potential unit buyer. The required disclosures were clearly intended to protect potential buyers by providing them with timely access to information needed to make their purchasing decisions. The supreme court could discern no benefit to unit sellers by the statutory disclosure time limit.
  • Although the Channons maintained that the monetary limit was plainly intended to benefit sellers by making the requisite documents more affordable for them to obtain, that language could just as easily be viewed as aiding potential buyers by ensuring that information critical to their purchasing decisions is readily available. The legislative intent of the disclosures was primarily to benefit potential unit buyers. The single benefit arguably bestowed on sellers in the reasonable fee requirement was merely incidental to the underlying purpose of resale.
  • The supreme court held that the act did not create an implied private right of action by a unit seller against an association’s agent for violating the act’s disclosure document fee limit. The association or the board was the party obligated by the act to provide the disclosure documents to a seller and the one subject to the fee limit. The association or the board is the party against whom a seller has recourse for allegedly charging excess fees.
  • Accordingly, the appellate court’s judgment was reversed, and the case was remanded to the trial court for further proceedings.

 

Legal Resource

If you are board member, property manager, or community association leader with questions about these recent case law updates, do not hesitate to contact our law firm.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collectionslandlord/tenant issues, and property tax appeals. We have four office locations, serving hundreds of clients and thousands of communities throughout Illinois, Indiana, and Wisconsin. Our attorneys are also licensed in Arizona, Florida, and Missouri.

 

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