3 Facts Most People Get Wrong About Condo Insurance, Illinois

If you’re on the board of your condominium or homeowners association (HOA), you undoubtedly take your fiduciary duty quite seriously. Part of your responsibility to protect the association’s interests includes finding the best insurance coverage at an affordable price. This may be easier said than done. Association insurance can be complex, and most board members are confused about the types of coverage they need and how each one works.
 
Having a knowledgeable and trustworthy insurance broker or agent will help ensure that you have the coverage you need to meet any Illinois statutory requirements, as well as your association’s bylaws, declarations and unique needs. Make sure the agent has expertise in providing association coverage and a strong track record with communities like yours. Someone with this type of background will know how to tailor a program that offers the right coverage at the most affordable price. Your property management company should be able to able to help you find an experienced agent.
 
Meanwhile, read on to learn 3 important aspects of association insurance that many boards don’t understand. (Please note that this information is not intended as professional advice. Discuss your association’s insurance needs with a qualified insurance agent to ensure proper coverage.)

D&O insurance is based on when a claim is made, not when the incident occurred.

The decisions you make and the actions you take while serving your association can potentially result in lawsuits or allegations. Directors and officers (D&O) coverage protects you and the other board members – as well as your spouses, other volunteers, committee members, staff, the management company and the community manager – from such claims.

Although you may already know this, you may not be aware that D&O policies are “claims-made” not “occurrence” policies. An occurrence policy covers accidents and incidents that happen during the coverage period. An example of this type of policy is liability insurance. A claims-made policy, on the other hand, provides coverage if it is in force at the time a claim is made.

“This is an important distinction because it’s not unusual for someone to file a claim long after an incident has happened,” says David Jandak, vice president of finance at FirstService Residential in Illinois. “If a claim is filed while the association has D&O coverage, it doesn’t matter when the incident occurred. Any past, present or future officers and board members may be covered.”

Jandak notes that your policy should have a retroactive date and/or a “Full Prior Acts” clause that dates back to when the association was incorporated. “This ensures coverage is in place as of that time even if you didn’t get the policy until later,” he explains. Jandak recommends having your insurance broker change your D&O policy if it doesn’t currently have one or both of these.

An umbrella policy does not supplement your property coverage.

A common misconception about umbrella policies is that they provide associations with additional property coverage. Here’s how they really work: Once you have exhausted the limits of your general or D&O liability policy, the umbrella policy goes into effect to provide additional liability coverage. However, it does not provide any additional property coverage.
 
Since they don’t fully understand what umbrella policies cover, some condo associations and HOAs will reduce the amount of property insurance they have mistakenly believing they can save money and still be covered by the umbrella policy. Unfortunately, this leaves them woefully underinsured. Instead, be sure to get enough property insurance coverage from the beginning.

Every part of building ordinance and law coverage (A, B and C) is necessary. 

So if you obtain the right amount of property insurance, you’ll have all the coverage you need in the event of loss or damage to your structures, right? Wrong! If your community is older, chances are the existing structures don’t comply with current building codes. Property insurance only covers the cost of rebuilding these structures to the original standards, not to any new standards.
 
That’s where building ordinance and law insurance comes in. This coverage fills the gap between  what your property insurance covers and the cost of complying with current standards – but only if you get all three parts: 

• Coverage A – Loss to the Undamaged Portion of the Building. Depending on local building ordinances, you may need to demolish and rebuild a building that incurs a significant amount of damage (generally 50 % or more) so that it complies with current codes. Coverage A reimburses the association as if the building sustained a total loss, even when it was only partially damaged.
• Coverage B – Demolition. This provides coverage for the cost of demolishing and removing debris from the undamaged portions of a building that’s been partially damaged.
• Coverage C – Increased Cost of Construction. This part covers the additional cost of meeting current building codes when reconstructing an older building. For example, current code might require you to install a fire sprinkler system if a major fire damaged your older building.

Association insurance isn’t easy to understand, but partnering with the right property management company can help. Our affiliation with FirstService Financial enables us to offer the communities we manage with exclusive access to the best insurance coverage at the lowest price possible. It’s just one more way that FirstService Residential goes above and beyond to serve the needs of HOAs like yours.