A Homeowners Association is an organization governed by residents within a neighborhood and works to preserve the safety and integrity of the common grounds. They can be a valuable part of any subdivision.
The management of an HOA carries with it many responsibilities, one of which is protecting the board members and the residents. Board members are expected to place the needs of the association above their personal needs, remain loyal and avoid any conflicts of interest.
In most states, having HOA insurance is a requirement for forming an association. This is different from regular Homeowners Insurance, which is the direct responsibility of the homeowner for the sole benefit of the homeowner. In the state of Illinois, associations are required to have, at a minimum, Property Insurance, General Liability Insurance, a Fidelity Bond and Directors & Officers Coverage.
Any Condominium Association in Illinois is required by section 12 of the CPA to have Property Insurance. The association must maintain insurance on the common areas and units, including the units’ bare walls, floors and ceilings.
Coverage must be provided upon purchase of insurance as well as at each renewal date. In the case for special causes of loss, the property insurance must provide coverage at any amount less than the full insurable replacement cause of the insured property, not including deductibles.
In the event where the insured property must be rebuilt, coverage must be sufficiently adequate to include demolition costs and increased cost of construction. The rebuilt property must conform to building code requirements. The total of the two cannot be less than 10% of each building’s value, or $500,000, whichever is less.
General Liability Insurance
The association must also maintain a commercial general liability insurance policy in the event of claims and liabilities that may arise with the ownership, use, existence or managing of the property. This is likely the most important HOA insurance policy because of the vast number of situations it can cover.
The minimum coverage amount must be $1 million, or any greater amount if deemed appropriate by the board of directors. The board, the association, the manager and their employees must all be covered through liability insurance. Agents and individuals acting as agents must also be covered.
Additional insured parties include the developer and unit owners. The developer shall be listed as a unit owner, manager, board member or officer. Unit owners shall only be included in the event where claims or liabilities occur in relation to the common areas. Claims of one or multiple insured parties against another must also be covered through liability insurance.
In the event where an employee’s fraudulent or dishonest actions leads to loss, a fidelity bond will protect the employer. This type of insurance is also known as “crime insurance” or “fidelity insurance” and can protect against physical or monetary losses.
A fidelity bond must be obtained and maintained within any Condominium Association in Illinois with 6 or more dwelling units. The bond must cover all individuals including the managing agent and their employees. These individuals oversee funds of the association, such as the association reserve fund.
They control or distribute funds in custody of the association, for the maximum amount of coverage obtainable to protect funds. In addition, the fidelity bond has to be for the full amount of all association funds and reserves in the care of the HOA or management company.
Director And Officer Coverage
The board of directors must obtain a reasonable amount of Directors & Officers’ Liability Coverage, as determined by the board. Sometimes this may be previously established by the declaration or bylaws.
The coverage will apply to all activity that the directors and officers have assumed as part of their official duty. Cases in which directors and officers are not entitled to compensation will not be included in coverage. The General Not For Profit Corporation Act of 1986 and/or the association’s declaration and bylaws may deny such compensation.
The policy must include coverage for defense of non-monetary actions, breach of contract as well as defense of decisions related to the purchase of or sufficiency of insurance. The policy shall cover all board members, which include: board of directors and their employees, the managing agent and the manager.
Ensure You Meet HOA Insurance Requirements
Even with the best preventative measures in place, accidents and oversights will still occur. This is why many states, including Illinois, have established rules regarding why HOA insurance is required. If you have questions regarding HOA Insurance, or would like to get a quote for your HOA, contact the experienced professionals at Pro Insurance Group at 833.619.0770, or go to Pro Insurance Group online.