In the state of Illinois, Homeowners Associations (HOA) and Condo Associations – organizations that are typically governed by the owners and/or residents within a neighborhood or gated community are required by law to carry specific types of insurance:  Property Insurance, General Liability Insurance, a Fidelity Bond and Directors & Officers Insurance.  The coverages not only protect the association but also offers some protection to the individual unit owners.

Let’s break each of them down:

Property Insurance

According to the State of Illinois section 12 of the Condominium Property Act (CPA) associations must have property insurance coverage for the common elements and the units including the limited common elements and except as otherwise determined by the board of managers, the bare walls, the floors and the ceilings of the unit.  The coverage must also be at the full replacement cost of the insured property, less the deductibles, and must be sufficient enough to rebuild the property within compliance with current building codes. 

It should be noted that individual property owners will need to purchase their own individual Homeowners’ Insurance policy to cover what the HOA or Condo Association insurance does not – this includes not only their personal property but also everything from the “Walls, floor and ceiling IN”.  In Illinois, who covers what beyond what is stated under the Statute is governed by the bylaws of the association.  In most cases, the unit owners are required to cover everything past the studs: i.e. drywall, the cabinets, carpeting, etc.  Sometimes, though rarely, the association covers everything.  It is therefore important for the unit owners and lenders to review the bylaws carefully and make no assumptions on coverage. 

In Illinois, who covers what beyond what is stated under the Statute is governed by the bylaws.  In most cases, the unit owner are required to cover everything past the studs: ie,  the drywall, the cabinets, carpeting, etc.  Sometimes, though rarely, the association covers everything.  It is important for unit owners and lenders to review the bylaws. 

General Liability Insurance

Illinois requires HOA/Condo Associations to carry a minimum of $1,000,000 in General Liability Insurance against claims and liabilities arising in connection with the ownership, existence, use, or management of the property. If the board deems it necessary, higher limits may be procured.  It should be noted that associations should be sure they have the correct “additionally named insureds” listed on the policy to include but not limited to the developer and unit owners.  Unit owners shall only be included in the event where claims or liabilities occur in relation to common areas of the property(ies). 

Fidelity Bond

To protect against employee fraud such as embezzlement, companies carry Fidelity Bonds. In Illinois, an association with 6 or more dwelling units must obtain and maintain a fidelity bond covering persons, including the managing agent and its employees who control or disburse funds of the association, for the maximum amount of coverage available to protect funds in the custody or control of the association, plus association reserve funds. 

Directors and Officers Coverage or D&O

The individuals on the Board of Directors of any association including HOAs and Condo Associations carry immense responsibility. To protect them the state of Illinois requires HOAs to carry Directors and Officers Insurance at a level deemed necessary by the board if not otherwise established by the declaration or bylaws. D&O liability coverage must extend to all contracts and other actions taken by the board in their official capacity as directors and officers, but this coverage shall EXCLUDE actions for which the directors are not entitled to indemnification.  Note the insurance needs to cover ALL past, present, and future board members, the managing agent, and employees of the board of directors and managing agent.  

Working with the Habitational group at Power Risk Management ensures you’ll have the right coverage in place for your Association.  If you have questions or concerns about your current policies, give us a call or stop into one of our convenient Illinois locations.

At Power Risk Management we offer free consultations to review your current coverages.  

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