Insurance Requirement Changes in the Condominium Property Act
IT’S JULY, DO YOU KNOW IF YOUR INSURANCE COMPLIES WITH ILLINOIS LAW?
As of June 1, 2015, all condominium associations were required to have insurance consistent with recent changes to Section 12 of the Condominium Property Act. Public Act 98-0762, which was signed by former Governor Quinn on July 16, 2014, became law June 1, 2015 and it modified certain insurance requirements for condominium associations. Note that this Public Act modified only condominium insurance requirements. Common interest communities, master associations and cooperatives were not impacted by this Public Act. The changes to Section 12 of the Condominium Property Act can be summarized as follows:
Property insurance maintained by the association upon the common elements and units must now also include coverage not only for the full replacement cost of the insured property, but also coverage sufficient to rebuild the property in compliance with current municipal codes and ordinances in effect at the time of rebuild (“ordinance coverage”)
- An association’s property insurance policy must provide coverage for all costs of demolition and increased costs of construction
- The combined total coverage for costs of demolition and increased costs of construction must be either 10% of each insured building’s value or $500,000, whichever is less
- If an association’s property insurance covers betterments and improvements within the units, the policy now also insures any additions, alterations or upgrades installed or purchased by the unit owners
Directors & Officers Coverage
All D & O policies must now cover claims that seek non-monetary relief (i.e. suits for injunctive relief, declaratory actions) and breach of contract actions
- The D & O policy provides coverage to all currently-serving board members in addition to former and future board members
- The managing agent, the managing agent’s employees and any employees of the board must be covered under the association’s D & O policy
Public Act 98-0762 also removed the statutory authority of a condominium association to purchase insurance on behalf of an owner who fails to do so. This is a codification of what many have found over the years to be a commercial impossibility. Insurers have been unwilling to write these policies for associations often citing the lack of an insurable interest. As a result, if an association has a governing document provision requiring unit owner insurance and should an owner fail to maintain the coverage, the board’s only option compel purchase of the required insurance is to file an action in circuit court.
If an association has not done so already, it should consult with its insurance professional to verify its coverage is in compliance with the recent changes to Illinois law. There is no exception that allows a board to wait until renewal to come into compliance and only policies that are consistent with the current language of Section 12 of the Condominium Property Act may be written by insurers or renewed by associations.