On January 1, 2002, the Governor certified Senate Bill 1046, sent to him on December 7, 2001, after a prior submission, amendatory veto and acceptance of said amendatory veto by both the Illinois House and Senate. This bill, now Public Act 92-0518, deletes Section 12¹ of the Condominium Property Act (the "CPA") in its entirety and replaces it with new provisions. The new provisions obligate insurance companies to provide the required coverage in any policies issued or renewed after the effective date. This is a revolutionary change in the law vis-à-vis condominium associations

The following are some of the new obligations/rights under Public Act 92-0518:

1. requires condominium associations to maintain special form causes of loss property insurance to cover common elements and units, including limited common elements and bare walls, floors and ceilings bordering the individual units (except as otherwise set by the board) for at least the full insurable replacement cost of the insured property, less deductibles [previously, the deductibles were not credited and the base definition of the insurable portion of the units was not defined];

2. requires associations to maintain a minimum of $1,000,000 of comprehensive general liability coverage [previously, the minimum was not specified];

3. permits the board to determine whether deductibles are to be paid as a common expense, (after notice and hearing opportunity) by unit owners causing or whose units cause a loss, or by unit owners affected by a loss [not previously addressed];

4. permits boards and/or governing documents to require unit owners to insure against their personal liability to other unit owners from damage such as overflowing plumbing fixtures [not previously addressed];

5. requires fidelity bonding and directors and officers liability insurance [not previously required], as follows:

a. association of at least six units must obtain a fidelity bond covering persons who control/disburse association funds, including management, "for the maximum amount of coverage available to protect funds in the custody or control of the association, plus [reserves]";
b. management companies responsible for funds held/administered by associations also "must be covered by a fidelity bond for the maximum amount of coverage available to protect those funds[;]" and
c. directors and officers liability insurance in amounts established in the declaration or bylaws or, in the event they are not established in those documents, as determined by the board to be reasonable; must cover all contracts and actions taken in official capacity, but mandatorily excludes actions for which directors and officers are indemnified under declaration, bylaws or General Not-for-Profit Corporation Act;

6. sets priorities for payments from insurance proceeds [previously, the disbursal was to be pursuant to the declaration, by-laws and CPA], as follows: first 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 the association may insure. Unit owners are not entitled to receive any portion of the proceeds unless there is a surplus of proceeds after the common elements and units have been completely repaired or restored or the association has been terminated as trustee.

7. includes waivers of subrogation rights and establishes association insurance primacy previously addressed];

8. defines "common elements" as including "fixtures located iwthin the unfinished interior surfaces of the perimeter walls, floors, and ceilings of the individual units initially installed by the developer[,]" and excluding "floor, wall, and ceiling coverings";

9. defines "improvements and betterments" as "all decorating, fixtures, and furnishings installed or added to and located within the boundaries of the unit, including electrical fixtures, appliances, air conditioning and heating equipment, water heaters, or built-in cabinets installed by unit owners[;]"

10. requires vendors doing at least $10,000 of business with an association to provide certificates of insurance; and

11. permits variations/waivers of mandatory coverage for wholly nonresidential condominium associations.

We are available to assist condominium associations in complying with the new law.

A. an insurance review of current coverage and necessary changes to that coverage

B. implementation of rules:

i. governing the assessment of deductibles and other charges to owners responsible for damage;

ii. governing the adjustment of losses;

iii. governing mandatory insurance by unit owners, including provision of certificates of insurance and/or authorization for the board to purchase missing insurance and charge back the expense to the non-compliant unit owners

C. contractor compliance reviews-certificates of insurance

D. reconciliation of declaration/by-law requirements with requirements of the CPA.

¹ This Public Act also modifies Section 12.1 of the Act, regarding insurance risk pooling trusts

Please contact SHELLEY R.Z. BARNETT at 1-847-931-2436, or our of counsel, JEFFREY A. GOLDBERG, at 1-800-221-0387, to discuss these matters.