Understanding property insurance options for townhouse communities
Q. The developer of our townhome common interest community (we are not a condominium) required each owner to have property insurance on their own unit, a practice our association continued after turnover of control from the developer. Recently, we changed property management companies and management strongly urged us to change how we handle property insurance. Management suggests that the association procure property insurance for all of the buildings. Are there advantages/disadvantages to either the individual homeowners or association procured property insurance coverage for the community?
A. The association’s declaration and bylaws need to be reviewed to determine whether the association or individual owners are required to procure property damage insurance for the units. That is, responsibility for procuring this insurance is not a decision that can be made, or changed unilaterally, by the board. If the board wants to change who is responsible to procure the insurance, the declaration or bylaws would have to be amended. From a practical standpoint, in the event of a catastrophic loss, it would be easier for the association to coordinate rebuilding if insurance is obtained by, and proceeds issued to, the association. It is much more difficult to chase individual owners to make claims with their individual insurance carriers and obtain insurance proceeds, and there could be a situation where an owner permitted their insurance to lapse. That could result in a problem trying to rebuild after a casualty loss. The board should review the association’s declaration with counsel, and the insurance options with an insurance agent or broker, knowledgeable in association insurance.
Q. Our association has a “claims made” liability insurance policy and is considering changing to an “occurrence” insurance policy. What is the difference between the two types of policies, and is there a risk in making this switch?
A. A “claims made” insurance policy covers claims that are made during the term of the policy. The loss can occur before or during the policy term, so long as the claim is made during the term of the policy. An “occurrence” insurance policy covers losses that take place during the term of the policy. However, a claim under an occurrence policy can be made during or after the term of the policy, so long as the loss occurred during the term of the policy. Changing from a “claims made” policy to an “occurrence” policy could leave a gap in coverage. This happens when a claim is made after the expiration of the “claims made” policy and during the term of the “occurrence” policy for a loss that occurred during the term of the “claims made” policy. A “tail” endorsement to the old policy can be procured to cover that gap. The board should speak with its insurance agent or broker about these issues before making the switch.
Q. I own a condominium unit in Illinois, but spend much of the year in an apartment in Florida. My daughter is not an owner of my unit, but I gave her power of attorney to manage my affairs when I am away. Can my daughter serve on the condominium board?
A. Your daughter may not serve on the board of your Illinois condominium association. Board members are elected from among the unit owners. Your daughter is not a unit owner. A power of attorney may grant your daughter rights to act on your behalf concerning your Illinois real estate, and this could include permitting your daughter to vote on your behalf at meetings of the owners. However, a power of attorney does not grant an ownership interest in your unit to your daughter.
• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at condotalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.