Q&A: Mandatory Coverage

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Q. My co-op board just voted to require all shareholders to buy homeowners insurance. I’d like to find out if that’s a common thing, but I don’t know who to ask. Thanks!

                                          —Is This Right?

A. “Requiring shareholders to carry homeowners insurance helps to resolve conflicts between shareholders, and between a shareholder and the building,” says attorney Marc J. Luxemburg, of counsel to the New York firm of Gallet Dreyer & Berkey, LLP.  “When conduct by one shareholder causes damage to another shareholder, or to the building, the most frequent instance being a leak, the conflict is more easily resolved if the shareholder responsible for the damages does not have to personally come out-of-pocket to reimburse for the damages, and the damages can be resolved by an insurance company.  A cooperative board of directors has the authority to require that shareholders purchase homeowners insurance either by amending the house rules, or by amending the bylaws of the corporation.” 

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  • Doesn’t “amending the bylaws of the corporation” require a vote if the shareholders? Very important step.
  • The House Rule of our Coop in the Upper West Side has a requirement like this. The board and management do not enforce it, however, because the paperwork overhead is too daunting. The absence of liability insurance on the part of the Coop unit owner exposes them to the potential for loss. If there is an uninsured liability claim against them from the Cooperative, their shares are the corporation's surety that they will pay, since they can not transfer ownership, i.e. complete a sale, without clearance from the corporation. So we conclude that there is no real benefit to the corporation of enforcing the requirement.