Q: I live in a building with six condos in Chicago. Recently, the hot water tank from my upstairs neighbor broke and water leaked from his unit into my unit. The upstairs neighbor contacted his insurance company and opened a claim for my damage.
However, a claim representative from his insurance company called and told me that because of a waiver in our condo documents, I need to file a liability claim to my own insurance company. My own insurance company can then file a subrogation claim. He said that he cannot continue the liability claim filed for me by my upstairs neighbor unless I don’t have any insurance coverage myself.
The condo documents contain a clause that states that each owner waives and releases any and all claims which they may have against any other unit owner for damage to the condominium units caused by any casualty, to the extent that such damage is covered by fire or other form of casualty or liability insurance.
This is the fourth time water has leaked down into my unit from the upstairs unit. My previous insurance company dropped me after I filed my third claim. This is why I do not want to file a claim this time with my current insurance company.
Is the claim representative’s interpretation of the waiver correct or is the claim representative just finding an excuse to reject my liability claim? Is my upstairs neighbor personally responsible for the damage of my unit regardless of the decision of his insurance company? And, do I have any recourse?
A: You raise some interesting points in your letter about insurance and living in condominium buildings. Rather than deal with the insurance side of your letter first, we want to deal with the upstairs neighbor issue.
Most homeowners will find that at one point or another they will have water rain down upon them from an upstairs unit or from a leaky roof. Sometimes, the upstairs neighbor will be at fault, perhaps because they failed to monitor a bathtub that overflowed, failed to take care of a clogged toilet or did something silly and set off the fire sprinklers.
However, there are other times that leaks from neighbors are honest mistakes or plumbing failures. You can have a water filter that breaks, a plumbing line that ruptures, a washing machine or dishwasher water line that breaks, or a leaky shower, tub, toilet or sink. These things are quite common and normal occurrences in buildings.
The issue for you is to determine why they are happening so frequently with your neighbor upstairs. If that neighbor is simply negligent, you should approach the condominium management about enacting rules that would fine an owner for certain mishaps.
We don’t know of condominium buildings that actively encourage leaks or water problems in their buildings. Water issues can cause huge issues in buildings, and even cause structural failure. Your building’s homeowners association should encourage unit owners to maintain their units and to use good faith efforts to avoid water raining down on neighbors. We hope that your condominium association will take action to assist you in avoiding future water issues from the neighbor upstairs. Four times is two or three times too many.
When it comes to insurance, it’s a trickier issue. Most condominium declarations that Sam reviews in his practice emphasize that each unit owner must have insurance to cover the interior space of their condominium and for their personal effects. That’s by design. Condominium associations try to have each owner’s policies cover their own things inside their four walls, ceiling and floor.
In some situations, you might be able to go after the building insurance for losses you sustain but only if the building has insurance coverage for those items. You might want to see if you can file a claim against the building’s insurance coverage.
Having said that, we suggest you talk to your own insurance agent or carrier to walk you through your insurance coverage and to review the building insurance as well. Some homeowners have a very low deductible on their insurance policies. With a low deductible, they can file a claim for any loss above that deductible. In some situations, it might be better to have a higher deductible and handle small losses on your own.
While the association documents purport to have you waive a claim, your insurance carrier may have the right to go after your neighbor for the damage. That’s the subrogation you were talking about. You don’t go after the neighbor; your insurance company goes after your neighbor’s insurance carrier.
That usually sounds good, but some insurance companies would rather pay you the claim than to spend the time chasing after the other insurance company. We wonder if that happened to you with your other claims. Insurance companies drop homeowners they feel are high risk, which is anyone who has two, three or more claims within a couple of years. And, unfortunately, that was you, even though none of this is your fault.
What can you do? As we said, you can try to get your management company to help you out and talk to the upstairs neighbor about the water issues. You can plead with your neighbor to keep his unit in better shape to avoid future leaks. You can work with your insurance agent to figure out what coverages you should carry and the best deductible amount to suit your situation.
And, finally, you can talk to an attorney in your area and see if your association’s documents, or the laws in your state, give you any right to sue the neighbor for their repeated financial problems they have caused you. While you have to deal with association’s waiver provision, there may be other provisions in your condo docs that might work in your favor, and the attorney may know of other legal cases in your state that can help.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)