Illinois mandates Condominium Association to carry this type of Insurance?
Here’s a clear breakdown of the insurance requirements and best practices for Illinois condominium associations:
1. Property Insurance (Mandatory)
Legal requirement:
Under 765 ILCS 605/12(a), every condominium association must maintain property insurance on the common elements and the units (except for personal property within the units) to cover physical damage caused by common perils such as fire, windstorm, or vandalism.
Key points:
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Coverage amount: Must be no less than the full insurable replacement cost of the property (not including land or foundation costs).
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Scope: Must cover all units and common elements, including fixtures, walls, floors, and ceilings that were originally part of the building.
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Exclusions: Typically does not cover personal belongings of unit owners or upgrades made inside individual units.
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Named insured: The association is the named insured, not individual unit owners.
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Use of proceeds: Insurance proceeds must be used to repair or rebuild damaged property unless ¾ of unit owners vote not to rebuild.
Example:
If a fire damages a section of the building, the association’s master property policy pays for rebuilding the common elements and original interior construction. Unit owners’ personal property and interior upgrades (like new flooring or cabinetry) are covered by their HO-6 individual condo policies.
2. General Liability Insurance (Mandatory)
Legal requirement:
Also under 765 ILCS 605/12(b), associations must carry comprehensive general liability insurance covering the association’s legal liability for bodily injury or property damage occurring on common elements.
Key points:
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Coverage amount: Must be not less than $1,000,000 per occurrence.
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Coverage area: Includes common areas like hallways, lobbies, pools, garages, or landscaped areas.
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Purpose: Protects the association and its members if someone is injured or property is damaged in a common area.
3. Directors and Officers (D&O) Liability Insurance (Mandatory)
Legal requirement:
Under 765 ILCS 605/12(c), the association must maintain D&O liability insurance.
Key points:
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Protects board members, officers, and the association itself from lawsuits related to alleged wrongful acts, mismanagement, or breaches of fiduciary duty.
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Covers defense costs and settlements for claims made against the board in their official capacity.
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This insurance does not cover criminal acts or personal gain through misconduct.
4. Fidelity Bond / Crime Insurance (Mandatory if employees or funds are handled)
Legal requirement:
If the association’s managing agent, board members, or employees handle association funds, the ICPA requires fidelity bonding or crime insurance coverage.
Key points:
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Must cover anyone who has access to or control over association funds.
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Minimum coverage should be equal to the maximum funds handled at any one time (including reserves).
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This protects the association from theft, embezzlement, or fraud.
5. Optional but Recommended Coverages
While not strictly required by law, these are strongly recommended:
| Type | Purpose |
|---|---|
| Boiler & Machinery / Equipment Breakdown | Covers mechanical systems like elevators, HVAC units, and boilers. |
| Flood Insurance | Required only if the property is in a FEMA-designated flood zone and the association has federally backed mortgages. |
| Umbrella / Excess Liability Policy | Provides additional liability protection beyond standard limits. |
| Workers’ Compensation | Required if the association directly employs staff (e.g., maintenance workers). |
| Ordinance or Law Coverage | Covers costs of rebuilding to meet updated building codes. |
| Cyber Liability Insurance | Protects against data breaches involving owner records or online financial transactions. |
6. Unit Owners’ Responsibility (HO-6 Policy)
Although the association carries a “master” policy, unit owners are typically responsible for:
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Personal property within the unit (furniture, clothing, electronics)
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Unit improvements and betterments (upgrades beyond original construction)
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Personal liability inside their unit
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Loss assessment coverage (to help pay the owner’s share of deductible or uncovered losses)
Most Declarations and Bylaws require unit owners to maintain this type of coverage.
What is Additional Insured
What it does:
Adds another party (you) to the named insured’s policy, giving you coverage under their liability insurance for claims arising from their work, operations, or premises.
Why you should request it:
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Direct protection: If a claim arises due to the other party’s actions (e.g., a contractor causes property damage), you’re covered under their insurance instead of relying solely on your own.
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Avoids disputes: It helps ensure their insurer defends and indemnifies you, reducing finger-pointing between insurers.
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Contract compliance: Many contracts require this to align liability with responsibility.
What is Primary & Non-Contributory
What it does:
Specifies that the other party’s insurance will respond first (primary) to a claim, and your insurance won’t contribute (non-contributory) unless their limits are exhausted.
Why you should request it:
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Protects your own policy: Your insurance stays untouched for claims that should fall under the other party’s coverage.
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Reduces costs: Avoids claims on your own policy, which could impact premiums and loss history.
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Clarifies priority: Prevents insurers from arguing over which policy should pay first.
What is Waiver of Subrogation
What it does:
Prevents the other party’s insurer from seeking reimbursement (subrogation) from you after paying a claim.
Why you should request it:
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Stops backdoor lawsuits: Even if the other party’s insurance pays a loss, their insurer could otherwise sue you to recover what they paid.
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Promotes cooperation: Reduces post-claim conflicts and litigation between parties.
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Contractual fairness: Ensures each party’s insurer bears its own losses without pursuing recovery from the other.
Example Scenario
You hire a subcontractor to work on your property.
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They damage a client’s car.
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Because you’re listed as an additional insured, their insurance covers you.
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The primary & non-contributory language ensures their policy pays first.
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The waiver of subrogation prevents their insurer from suing you to recover the payment.