Many condo board members in Illinois think directors and officers (D&O) insurance is optional. They treat it as a nice extra to buy if the budget allows. That belief is risky, and it is also wrong. In Illinois, D&O coverage for a condo association is not optional. The law requires it.

The short answer: yes, the law requires it

So does every Illinois condo board really need D&O insurance? Yes. The Illinois Condominium Property Act spells out the insurance a condo association must carry, and you will find those rules in Section 12 of the Act (765 ILCS 605). Most boards already know two of the big ones. First, property insurance on the common elements. Second, at least $1,000,000 in general liability coverage. Fewer boards realize that the same section also requires the board to carry D&O coverage.

You will find the requirement in subsection 12(a)(3)(D). It directs the board to obtain D&O liability coverage at a level the board considers reasonable, unless the declaration or bylaws set a different level. In other words, the law places this duty directly on the board. It is not a suggestion, and a board cannot quietly skip it to save money at renewal.

Why does the exact citation matter? The D&O requirement sits at 765 ILCS 605/12(a)(3)(D), under the heading “Fidelity bond; directors and officers coverage.” You may have seen it cited as “Section 12(c)” somewhere. However, that citation is wrong. Subsection (c) actually covers insurance deductibles. So when you rely on the law as a board member, you need to point to the right subsection.

What D&O insurance actually protects

Condo board members are volunteers. They are unit owners who agreed to give their time to run the association. Day to day, they approve budgets, hire vendors, enforce rules, and make tough calls about repairs and reserves. Unfortunately, any one of those decisions can trigger a lawsuit. For example, an owner might challenge a special assessment. A vendor might sue over a contract. A resident might claim the board enforced a rule unfairly. In each case, the lawsuit can name the board and individual members directly.

This is where D&O insurance steps in. It pays the legal defense costs and any resulting settlement or judgment that flows from the board’s official decisions. Without it, a board member’s personal assets can be at risk for choices they made as an unpaid volunteer. With it, the policy defends the board and covers the claim.

D&O does not cover everything, though. It will not protect a board member who commits a crime, acts intentionally to harm someone, or makes a decision for personal financial gain. For example, a board member who steals association funds gets no protection from D&O. Instead, a different coverage handles that risk, and we will explain it below.

What the law requires your D&O policy to include

Illinois does not just require a policy to exist. It also spells out what that policy must do. Under 765 ILCS 605/12(a)(3)(D), the coverage must extend to every contract and action the board takes in its official role. On top of that, it must specifically cover three things:

• Defense of non-monetary actions. These are lawsuits that ask for something other than money, such as a court order forcing the board to act or to stop acting.
• Defense of breach of contract claims. These are disputes over agreements the board signed for the association.
• Defense of decisions about the placement or adequacy of insurance. In other words, claims arguing the board bought the wrong coverage, or too little of it.

The law also names who the policy must protect. Specifically, the coverage must include these people:

• Past, present, and future board members, while they act in their board role
• The association’s managing agent
• Employees of the board and of the managing agent

That phrase “past, present, and future” carries real weight. For example, a board member who left two years ago can still face a lawsuit over a decision from their term. Therefore, a strong Illinois policy follows that risk and does not leave former volunteers exposed.

The one big carve-out: the indemnification exclusion

The law also builds in one important limit. The required D&O coverage excludes any action where a director cannot receive indemnification under the Illinois General Not For Profit Corporation Act of 1986, or under the association’s own declaration and bylaws. Put simply, the coverage backs board members in the honest exercise of their duties. However, it does not erase the limits that already control when a board member can be indemnified at all.

For this reason, a board should review its declaration and bylaws alongside the policy. The governing documents and the insurance need to work together. Otherwise, a gap between them tends to surface at the worst possible moment, right after someone files a claim.

“Required” does not mean “adequate”

Here is the trap. The law requires D&O coverage, but it sets the limit at a level the board “considers reasonable,” unless the declaration or bylaws say otherwise. That freedom cuts both ways. Technically, a board can satisfy the law with a low limit. Then, after a serious claim, the board may find that defense costs alone wipe out the limit. As a result, the association and its members carry the rest of the cost themselves.

Illinois courts have long held that condo board members owe a fiduciary duty to the association and its owners. Courts have also treated a failure to secure adequate insurance as a possible breach of that duty. So a bare-minimum D&O policy does more than create financial risk. In fact, it can create the very liability the coverage should prevent. “We met the minimum” makes a weak defense.

So what is the right limit? You will not find that number in the law. Instead, it depends on the size of your association, the value of the property, the reserve balance, your claims history, and the real cost of defending a lawsuit in your county. Therefore, this is a conversation to have with an agent who knows condo associations, not a box to check at renewal.

D&O vs. the fidelity bond: two things boards confuse

Because D&O coverage and the fidelity bond sit in the same part of the Act, boards often mix them up. Yet they guard against very different risks:

• D&O insurance covers decisions. It responds to lawsuits over how the board governs.
• A fidelity bond covers dishonesty. It responds to theft, fraud, or embezzlement of association money. Under 765 ILCS 605/12(a)(3), an association with six or more units must carry a fidelity bond. That bond must cover anyone who handles association funds, including the managing agent and its staff, up to the full amount of the association’s funds and reserves.

In short, a board needs both. D&O will not replace a stolen reserve fund, and a fidelity bond will not defend a lawsuit over a special assessment. So an association that carries one and assumes it covers the other has a hidden gap.

Where Illinois condo boards get D&O wrong

Across our work with condo associations in Illinois, the same avoidable mistakes show up again and again:

1. Assuming the management company’s policy covers the board. A property manager’s own D&O policy protects the management company, not your volunteer board. Always confirm that the association’s own policy names the board.
2. Carrying a limit that has not moved in years. Property values, reserves, and legal costs keep climbing. Therefore, a limit set a decade ago may no longer count as “reasonable.”
3. Letting former board members fall out of coverage. Instead, the policy should cover past members for decisions made during their terms.
4. Treating D&O and the fidelity bond as the same thing. They cover different risks, and the law requires both.
5. Reading the policy only at renewal. The best time to understand your coverage is before a claim, not while you read a denial letter.

Not sure which of these applies to your association? Then that uncertainty is your signal to get the coverage reviewed. For a wider look at the renewal mistakes that cost Illinois boards money, read our companion guide, 5 Costly Condo Insurance Mistakes Illinois Boards Make at Renewal.

Frequently asked questions

Is D&O insurance legally required for condo associations in Illinois?

Yes. Under 765 ILCS 605/12(a)(3)(D) of the Illinois Condominium Property Act, the board must obtain D&O liability coverage. So it is a legal duty, not an optional extra.

How much D&O coverage does an Illinois condo board have to carry?

The law sets the limit at a level the board considers reasonable, unless the declaration or bylaws name an amount. As a result, there is no fixed dollar figure, and the board must choose an adequate limit itself. Because board members owe a fiduciary duty, an inadequate limit can create its own liability.

Does D&O insurance protect individual board members personally?

Yes. A compliant Illinois policy covers past, present, and future board members in their official role, plus the managing agent and employees. Therefore, it shields board members’ personal assets from claims over their decisions. However, it does not cover crimes, fraud, or decisions made for personal gain.

What is the difference between D&O insurance and a fidelity bond?

D&O insurance covers lawsuits over the board’s decisions. A fidelity bond covers theft, fraud, or embezzlement of association funds. Both appear in 765 ILCS 605/12, and a condo association generally needs both because they protect against different risks.

Are former condo board members still covered after they leave the board?

They should be. The law requires coverage to reach past board members for actions taken while serving. Because a claim can arrive long after a term ends, the policy needs to follow that risk.

Get your condo association’s D&O coverage reviewed

Weer Insurance Group works with condominium associations throughout Illinois. First, we review your current D&O and fidelity coverage against what 765 ILCS 605 requires. Then we flag any gaps. Finally, we make sure your board members are truly protected, not just technically compliant.

Call us at (773) 545-2001 or request a coverage review.

This article shares general information, not legal advice. The Illinois Condominium Property Act can change, and your association’s declaration and bylaws may add requirements. Before you act, talk with a licensed Illinois attorney and a licensed insurance professional about your association’s specific obligations.