Landlord insurance coverage for Chicago non legal units

[Eva Bici]

Can somebody shed some light on how Landlord insurance deals with coverage of these illegal basement units in Chicago? 
Do they provide coverage regardless whether is a legal unit or not?

Can they pull out of paying a claim if it was triggered due to an event that originated from that basement non legal unit? 

Thank you in advance for your responses. 

[Lauren Robins]

Hi Eva!

Landlord insurance policies in Chicago—and generally across the U.S.—typically exclude coverage for illegal or unpermitted units, including non-legal basement apartments. While some insurers might still issue a policy that covers the building as a whole, claims can be denied if the loss is connected to the unpermitted unit or if the insurer determines that the existence of the illegal unit was a material misrepresentation. For example, if a fire starts in the illegal basement unit due to unpermitted electrical work or if a tenant is injured there, the insurer may use the illegality as grounds to deny the claim entirely or limit their liability. This can leave the landlord personally exposed to property damage costs, liability suits, or even municipal fines. It's crucial for landlords to disclose all rental units to the insurer and consult with both legal and insurance professionals to understand the specific risks and coverage implications. In Chicago, where illegal basement units are common but increasingly scrutinized, relying on insurance to cover such spaces without formal legalization poses a significant financial risk.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.