P.A. 92-0518, SB 1046, Condominium Property Act; Insurance

Effective January 1, 2002, Public Act 92-0518, SB 1046 amended the Condominium Property Act regarding insurance and insurance risk pooling trusts (Sections 12 and 12.1, 765 ILCS 605/12 and 605/12.1). Section 12 now requires that insurance coverage issued to condominium association include the following: "(1) Property insurance (i) on the common elements and the units ... (ii) special form causes of loss, and (iii) in a total amount of not less that the full insurable replacement cost ... less deductibles, but including [building code construction costs]." 765 ILCS 605/12 (a)(1). However, it does not require that the association cover improvements and betterments to the units if installed by the unit owners. 765 ILCS 605/12 (b). Should a claim for damage to a unit or common element arise, the deductible may (i) be paid as a common expense, (ii) be charged to the damaging party upon notice and hearing, or (iii) be paid by the unit owners of the damaged property. 765 ILCS 605/12 (c). Any other insurance coverage may be required if stipulated in the declaration. 765 ILCS 605/12 (d).

The association must also have general liability insurance in a minimum amount of $1,000,000 to cover "the board, the association, the management agent, and other respective employees and agents." 765 ILCS 605/12 (a)(2). Additionally, if there are six or more dwelling units, the association must obtain a fidelity bond covering, to the fullest extent available, those who control or disburse funds of the association up to the amount of such funds plus the amount of reserve funds. 765 ILCS 605/12 (a)(3)(A). "The board of directors must obtain directors and officers liability coverage at a level deemed reasonable by the board ... but such coverage shall not indemnify actions under the General Not For Profit Act of 1986 or the declaration and bylaws of the association. 765 ILCS 605/12 (a)(3)(D).

Insurance policies required by 765 ILCS 605/12 (a) and (b) must provide as follows: "(1) Each unit owner and secured party is an insured person under the policy with respect [to their interest] in the common elements or membership in the association; (2) The insurer waives its right to subrogation; and (3) The unit owner waives his/her right to subrogation against the association or board of directors under the policy." 765 ILCS 605/12 (e). If other insurance covers the damaged property, the association's policy is the primary insurer. 765 ILCS 605/12 (f).

Insurance proceeds must be payable to and distributed by the association or appointed insurance trustee. Distribution must follow a procedure "for the repair or restoration of the damaged common elements, the bare walls, ceilings, and floors of the units, and then to any improvements and betterments of the association may insure." 765 ILCS 605/12 (g).

Section 12.1 is now known as the Condominium and Common Interest Community Risk Pooling Trust Act. 765 ILCS 605/12.1 (a). In order to protect the condominium association and common interest community association against the risk of financial loss arising in connection with property damage, the boards of managers or boards of directors of two or more condominium associations or common interest community interest associations may establish a trust fund, the beneficiaries of which will be the unit owners and common interest community associations. 765 ILCS 605/12.1 (b). In addition, the trust fund may indemnify the association beneficiaries "against risk of loss ... or imposition of legal liability ... under this Act." 765 ILCS 605/12.1 (e).

Such trust fund shall be amended only in writing, 765 ILCS 605/12.1 (c), and any beneficiary shall be incorporated under Illinois law, 765 ILCS 605/12.1 (d). The trustee of the fund will receive no salary but will be reimbursed for actual expenses. 765 ILCS 605/12.1 (i).

© ATG atgc0301vol27

 

Print this page