Prudent decisions to minimize unexpected liabilities

It is easier to make prudent and well-calculated decisions when storm clouds are looming and danger is apparent. When, however, the skies are blue and the robins are singing, one is likely to be less cautious.

Scenario one: ‘The kids are out of the house and we’re movin’ downtown’

Empty nesters have entered into a contract to sell their home in Hinsdale to out-of-town cash buyers. The empty nesters move out of their home on June 1, move into a spacious condominium overlooking Millennium Park and await the Aug. 10 closing. On Aug. 5, the Hinsdale home is materially damaged, the out-of-town buyers cancel the contract and no closing occurs on Aug. 10. The empty nesters file a claim with their insurance company, which is denied based upon a coverage exclusion in their homeowner’s policy. The policy does not include coverage where the described building “is vacant or unoccupied beyond a period of 60 consecutive days.”

Such a nightmare could have been avoided if an endorsement had been added to the insurance policy or other action taken to eliminate the occurrence of a vacancy.

Scenario two: ‘My mother made me throw ‘em out’

Mr. G purchases a $700,000 condominium unit in Streeterville. Because his mother made him throw out his baseball card collection, including the Mickey Mantle rookie baseball card, and the fact that he never collected objet d’art, Mr. G was advised that he did not need to purchase insurance. Since his monthly condo assessments included a portion allocable to the insurance maintained by the condominium association and because the value of the items of his personal property in the unit were of modest value, Mr. G was confident that he did not have to purchase his own insurance.

One day, a leaking commode in Mr. G’s unit caused damage to his unit and other portions of the building. The condominium association filed a claim on its insurance policy and the cost for the repairs was paid by the insurance company. However, the association had to pay a $10,000 deductible which was charged to Mr. G pursuant to the condominium declaration and the Illinois Condominium Property Act. Mr. G was required to pay the $10,000 deductible to the condominium association.

Mr. G’s monetary obligation could have been minimized or eliminated in its entirety if he had procured his own insurance, regardless of whether he still had that Mickey Mantle rookie year card in his nightstand drawer.

Scenario three: ‘Don’t worry, it’s only a listing agreement’

Mr. and Mrs. Smith, eager to sell their home, entered into a standard real estate broker’s listing agreement with a real estate company. Because the listing agreement was a standard form, they did not bother to ask their attorney to review the form.

One month after the listing agreement is signed by the Smiths, the real estate broker conducted an open house and, unfortunately, a prospective buyer suffered injuries after she fell down a flight of stairs. The injured party filed a lawsuit against Mr. and Mrs. Smith and the real estate broker. Because of an indemnification clause in the listing agreement, the broker tendered the defense of the lawsuit to the Smiths  who then had the burden of defending themselves against the claims of the injured party and they also had a contractual obligation to indemnify and protect the real estate broker.

Whether Mr. and Mrs. Smith may have had insurance coverage to protect them against the claims of the injured party will be dependent upon the terms of their insurance policy, which should have been reviewed before allowing members of the public into their home. The indemnification obligation of Mr. and Mrs. Smith could have been eliminated by the use of legal counsel who could have negotiated the deletion of such an indemnification obligation.

The experienced attorneys at Chuhak & Tecson are prepared to provide prudent legal counsel when you are faced with imminent trouble or when...the skies are blue and the robins are singing.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Arnold E. Karolewski, Principal

This alert originally appeared in the Fall 2017 Real Estate Focus newsletter.