Recent developments, both legislative and environmental, have led to considerable changes in the Illinois insurance marketplace. And such changes, as managers know, often lead to added paperwork, confusing requirements, and tricky legal questions for condo boards. While many new insurance products—such as the heavily-hyped “terrorism coverage”—have failed to catch on for the condo market, modifications in traditional coverage have altered the insurance picture in ways previously unseen.
Many insurance insiders now see condos as liabilities in the wake of the Great Recession. And that, in turn, presents problems for management. Although unit owners pay reserve fees on an ongoing basis, insurers fear some managers may defer maintenance in a bad economy. When that happens, say experts, condo properties become a bad risk, producing losses that are passed on to condo associations.
"The ongoing protection of condominium owners in Illinois appears to be reasons the Illinois Condominium Property Act has been amended in previous years,” says Tifinni Tegan, CIC, the assistant vice president of Ian H. Graham Insurance (part of Aon Affinity) in LaGrange, Ill., who specializes in crime and fidelity and directors and officers insurance coverage. "The downturn in the economy and homebuilding has highlighted the crime and fidelity requirements of the Illinois Condominium Property Act in more recent years. The managing agent or property manager and their employees must be covered under the association's directors and officers coverage. An association may then need to obtain more comprehensive coverage than that previously purchased."
The Illinois Condominium Property Act (ICPA) outlines specific insurance coverage and limit requirements for all condominiums in Illinois and specifically states that if any condo instrument has provisions in it that are inconsistent with the act, these instruments are considered void.
For example, the ICPA requires associations with six or more units to buy fidelity bond (crime coverage), Tegan explains. Now, many associations which did not previously purchase crime coverage are required to do so by law. Additionally, even if these associations had crime coverage in place, the limits might be inadequate per the act, meaning these associations have to increase limits on existing policies.