If you live in a condo or co-op in New York City, your building is obviously protected with insurance—but do you really know about the various layers of protection standing between your community and a broad array of risk factors? Does your building get by on a bare-bones policy, or do you have every conceivable base covered?

Many buildings maintain only the bare minimum of coverage, which in the case of an extreme happenstance could cost the unit owners money in the long run or result in higher premiums charged against their own insurance policy.

Then there are those properties—a large percent of them new luxury condos—that go all out when it comes to buying insurance protection, and cover just about every imaginable circumstance. While this may make residents feel better about their homes, it will cost more, and some people don’t think it’s all that necessary.

Even if your policies aren’t necessarily up for renewal, it’s not a bad idea to assess your community’s needs and exposures, and determine if your level of insurance coverage is the best possible fit. “The building takes out a master policy, the mortgage requires that,” says Barry Frost, vice president of Gotham Brokerage Co., Inc. in Manhattan. “They assess what they need and they can buy more coverage. A lot of the extras come in on an individual unit.”

Bare Necessities

When a co-op or condo looks into buying a new policy or changing carriers, the first thing that needs to be done is to look at the bylaws to make sure that all the basic insurance requirements are being covered.

“If you don’t follow the bylaws, you open yourself up to a directors and officers liability exposure,” says Tom Fontana, president of the Property & Casualty Group Insurance Co. in Cranford, New Jersey. And you can’t always trust what’s written. “After reading them, you need guidance from your insurance agent on whether these bylaws are outdated or limits are outdated. Maybe the construction costs are higher today or maybe the materials are—they have to make sure with their insurance agent that they are insured to value.”

A general building policy will include directors and officers liability, general liability, umbrella liability and workers compensation.

“Those are the main coverages they need,” Fontana says. “The other thing you want to have is employee dishonesty coverage for misappropriation of funds so people who have access to the funds don’t steal. They have to protect for that.”

Too Much is Never Enough

Once you have a basic insurance package, the options available to customize it are endless, and boards need to decide whether they want to get coverage for a variety of things.

“They should look into flood coverage if they have any basement exposure,” Fontana says. “Another ‘bells-and-whistles’ option would be cost-of-demolition and building-law-and-ordinance, which would cover them if the building burned down and they had to follow all these new codes when they rebuild. They might need more money for different types of windows or concrete or steel, etc. They should also have their maintenance fees covered, because if the building burns down, they’re not going to be getting those maintenance fees while the building recovers.”

Fontana also recommends that the co-op or condo get some boiler and machinery coverage for mechanical breakdowns due to electrical equipment.

There’s also insurance available for just about every catastrophe you can think of.

“A good part of Manhattan is in an area that is classified as a flood hazard area, so if there’s flood damage, they need to have a flood policy in place,” says Frost.

MariAnn Cole, president of Long Island Coverage Corp. in Hauppauge reminds that wind is also something to consider.

“Wind is a big issue,” Cole says. “Most carriers are offering it, but putting in a higher deductible. Then there’s ordinance of law, demolition, debris removal, they are all enhancement extras that could be bought.”

According to Frost, a building should also take out errors and omissions coverage in case the board makes an error in administrative judgment that winds up costing the building money.

“Let’s say that the roof is leaking and the board is aware of the issue, but makes the decision not to fix it,” he says. “If a unit owner gets damage as a result, they can file against the board of directors for not maintaining the building properly.” Errors and omissions coverage protects board members from having to pay out-of-pocket for such legal issues.

Another insurance option that is over and above the normal is what’s referred to as a guaranteed replacement policy. If you have such a policy, your carrier goes in and does an appraisal. Say, as an example, that the carrier subsequently insures the building for $25 million—but then something catastrophic happens, and the building must be rebuilt, but the cost is $27 million. You will still get the full, adjusted replacement cost because you had a good faith appraisal conducted beforehand.

Scaling Back

There are those buildings that try to do the bare minimum and even scale back their insurance from time to time to save money, or because the board feels that a certain rider or policy is redundant or unnecessary and is costing the building money needlessly.

“Maybe you buy a $5 million umbrella instead of a $25 million for a condo association. Maybe you don’t take the building ordinance and law coverage,” Fontana says. “The bylaws are pretty strict so it doesn’t allow you to scrimp that much. If you cover the bylaws to a tee and nothing else, that’s how you can scrimp.”

But that’s also how you can wind up in trouble, according to the professionals. If something terrible happens to the building, the individual homeowners may be paying out of their own pockets if their personal insurance doesn’t cover it.

“Say they skimp on coverage and they have a fire loss and they don’t have ordinance of law, or cost of construction,” says Cole. “Say they had $1 million on the building but it costs $1.5 million to replace. That half-million is assessed back to the homeowners and they have to submit the claim and hopefully have adequate coverage. You wouldn’t believe the number of people who don’t carry any [individual homeowners insurance] because they feel the condo or co-op is responsible for their contents—but it’s not.”

Cole adds that another way for a building to scale back is by having higher deductibles. You can have an all-inclusive package that is good price-wise, and you will handle all the small losses yourself so you loss history remains excellent. This will help you get better rates in the future.

Owning Up

A building’s general policy covers the common elements, but the policy will not extend to cover the individuals’ units. Cole says that in New York State, a building’s governing documents should outline who is responsible for what when it comes to insurance. She also advises that every carrier is different, so a board should know what their policy does and does not cover.

“Most bylaws will state that if there is damage to the apartment, that it is the unit owner’s responsibility from the front door to bricks on the outside of the building,” says Frost. “We will cover anything that was original on the master policy. If you go into a prewar building, and they had hardwood floors, if they were original, we’ll cover them on the master policy. If the unit owner changed those floors, then the master policy would not apply.”

Some unit owners will buy just what the board requires them to get, while others will insure for the worst possible scenario. Then there are those that don’t realize that they may be held responsible if something happens.

“Unit owners tend to be underinsured,” Frost says. “They don’t have a feel for what it would cost if they had to do major renovations to their apartment—and that is the biggest shortcoming, not having adequate limits.”

Everyone Makes Mistakes

When buying a policy, all our experts recommend comparing carriers and finding one that offers the best general policy—and even checking for better rates every three or four years. By standing still with one company, you can be missing out on savings.

Another area where mistakes are made is with hiring contractors. A condo association should get certificates of insurance from any contractors who do work on the premises, especially snow removal, and they want to be additionally insured if they can. Many don’t bother with this.

“The most common mistake is not making sure they have guaranteed replacement costs,” Fontana says. “That’s very important in case something happens to the building.”

Most homeowners don’t know the extent of coverage that their building has, and the board doesn’t have any responsibility to let them know, but that shouldn’t stop owners from asking. By being aware of what would happen in emergency situations, they can better protect themselves with individual policies of their own.

Keith Loria is a freelance writer and a frequent contributor to The Cooperator.