Types of Insurance Follow

Lunch and Learn April 2024

Top 7 Myths Regarding Association Insurance -link

KEY TERMS AND COVERAGE DEFINITIONS

Property

Replacement Cost – Valuation method that will replace damaged property with materials of like kind and quality, without any deduction for depreciation

Building– This is the dollar amount the insurance company will pay to rebuild in case of a total loss.

Business Personal Property – Equipment, fixtures, furniture, merchandise, etc. owned by the insured and used in your business. Also called contents coverage

Deductible – A specified amount of money that the insured must pay before the insurance company will pay a claim

Equipment Breakdown – Coverage for loss due to mechanical or electrical breakdown of nearly any type of equipment, including HVAC equipment, transformers, generators, computer, phone, or security systems, etc.  Coverage applies to the cost to repair or replace the equipment as well as resulting business income loss. 

Sewer Backup/Water Backup – Covers water damage due to the back up of sewers or drains.

Flood Coverage – A standard condominium policy will not cover damages caused by flooding. Designed to cover damage from the following: overflow or inland or lake waters; unusual and rapid accumulation of runoff or surface waters from any source; mud slides caused by flooding; the washing away, collapse or subsiding of land along the shoreline due to erosion or undermining of waves or currents of water exceeding the cyclical levels; and sewer backup caused by flooding.

Illinois Condo Act requires:

1. Coverage must be included for the units, the limited common elements except as otherwise determined by the board of managers, and the common elements. The insurance need not cover improvements and betterments to the units installed by unit owners
2. Common elements include fixtures located within the unfinished interior surfaces of the perimeter walls, floors, and ceilings of the individual units initially installed by the developer. Common elements exclude floor, wall, and ceiling coverings. "Improvements and betterments" means 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, built-in cabinets installed by unit owners, or any other additions, alterations, or upgrades installed or purchased by any unit owner. 
3. No insurance coverage is provided for floor, wall and ceiling coverings.
4. Provide coverage in a total amount of not less than the full insurable replacement cost of the insured property
5. Provide coverage for special form causes of loss

Ordinance Coverage(s) –

• Ordinance A: The undamaged portion of the building was not technically “damaged,” the regular property policy would not cover the “loss” of the undamaged portion of the structure. This coverage is designed to cover the costs to rebuild the undamaged portion.
• Ordinance B: Demolition Coverage covers the cost of demolition of the undamaged portions of the building in order for the entire building to be replaced with one conforming to present building codes.
• Ordinance C:  This covers the increased expenses incurred in replacing the building with one conforming to laws or ordinances or to repair the damaged building so that it meets current building laws or ordinances. It would cover cost to bring the damaged and undamaged portion up to current building code.

Illinois Condo Act requires:

1. Associations will be required to purchase a minimum limit of Increased Cost of Construction and Demolition coverage equal to 10% of each building limit or $500,000 – whichever is less.

General Liability

Provides coverage for damages legally owed to others for bodily injury or property damage and personal and advertising injury resulting from the operation of your business

• Occurrence: The most the policy will pay out from claims arising from a single incident.
• General Aggregate: The maximum limit payable for claims that occur under specified coverages during the policy period.
• Personal & Advertising Injury: Personal Injury includes claims alleging false arrest, detention or imprisonment; malicious prosecution; wrongful eviction; slander; libel; and invasion of privacy.  Advertising Injury provides coverage for claims alleging libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas
• Products/Completed Operations: Provides coverage for liability arising out of your products or business operations conducted away from your premises once those operations have been completed.
• Hired Auto Liability: Provides liability coverage for vehicles your business rents or borrows.
• Non-Owned Liability: Non-owned auto coverage protects your business in the event it is sued as a result of an auto accident while a personal vehicle is being used on company business.
• Employee Benefits Liability: Liability of an employer for an error or omission in the administration of an employee benefit program

Illinois Condo Act requires:

1. Limit must be a minimum of $1,000,000
2. Coverage under the General Liability section of the policy must be included for the Management Firm, the Board and the Developer (in his capacity as a Unit Owner)
3. Insurance must cover claims of one or more insured parties against other insured parties.

Directors’ and Officers Liability

1. Covers errors and omissions, negligent acts and misleading statements made by the Board of Directors and/or officers of a company.  Essentially covers claims resulting from managerial decisions that have adverse financial consequences.
2. Coverage is on a Claims Made Basis which means the policy in force when the claim is made will respond (regardless of when the actual incident occurred)

Illinois Condo Act requires:

1. All D&O policies must include coverage for defense of non-monetary damages, defense of breach of contract, defense of decisions related to the placement or adequacy of insurance. 
2. Also, policies need to include coverage for all past, present and future board members, the managing agent and employees of the Board of Directors and the managing agent.

Fidelity Bond (also known as Crime or Employee Dishonesty)

Covers dishonest acts of Board Members, Employees of the Association and often Volunteers and Committee Members who control or disburse funds of the association.

Illinois Condo Act requires:

1. Associations with 6 or more units are required to purchase
2. Must include coverage for the Property Manager.
3. Amount of coverage must be in the full amount of association funds in the custody of the association plus reserves

Umbrella Liability

1. Provides excess liability over an underlying general liability policy. This policy can often provide excess coverage over non-owned and hired automobile coverage,  Directors’ & Officers’ Liability and workers’ compensation coverage
2. Often includes a $5,000 or $10,000 Self Insured Retention (deductible)

Workers’ Compensation

Provides wage replacement and medical benefits in the event an employee suffers from a work related injury or illness.

1. Covers full time and part time employees as required by law
2. Cost is based on payroll, as well as classification of job duties.
3. Payrolls are estimated at the beginning of the policy period and audited at the end of the policy year to determine the actual payrolls.

Cyber Liability

Provides coverage for a business’ liability for a data breach in which the firm’s customers’ personal information is exposed or stolen.  Will typically provide coverage for legal fees, expenses, notification expenses, cost to restore personal identities of customers, recovery of compromised data.  See attached brochure for additional information

Miscellaneous

1. Association insurance is primary at the time of a loss

2. Per the Illinois Condo Act, unit owners and the association waive their rights of subrogation against each other. 

3. The board of directors may, under the declaration and bylaws or by rule, require condominium unit owners to obtain insurance covering their personal liability and compensatory (but not consequential) damages to another unit caused by the negligence of the owner or his or her guests, residents, or invitees, or regardless of any negligence originating from the unit. The personal liability of a unit owner or association member must include the deductible of the owner whose unit was damaged, any damage not covered by insurance required by this subsection, as well as the decorating, painting, wall and floor coverings, trim, appliances, equipment, and other furnishings. 

4. Certificates of Insurance must be on file for all contractors and vendors (other than public utilities) doing business with a condominium Association under contracts exceeding $10,000 annually. The Certificate must name the Association, its Board and its Managing Agent as additional insureds

Deductibles

The board of directors of the association may, in the case of a claim for damage to a unit or the common elements:

1. Pay the deductible amount as a common expense
2. After notice and an opportunity for a hearing, assess the deductible amount against the owners who caused the damage or from whose units the damage or cause of loss originated
3. Require the unit owners of the units affected to pay the deductible amount

Major Loss