When it comes to insuring a co-op or condominium community, a belt-and-suspenders philosophy could prove the safest – and perhaps, most advantageous – choice. Getting that extra coverage means going beyond the basics of property and liability insurance and venturing into the realm of specialty coverage.
Loosely defined as anything not covered in mainstream insurance offerings, specialty insurance encompasses a vast array of coverage options. As the insurance business has evolved over the years, it seems as though nearly every contingency has some sort of protection to mitigate it, from earthquakes to flooded basements.
Perusing the Menu
For co-ops and condos, there are two absolute must-haves in terms of insurance: property insurance and liability coverage. Property insurance covers the building itself in the event of fire or other destructive incidents. It can cover things such as the cost of replacing the building or loss of income from destroyed units, for example. Liability insurance covers the co-op or condo in the event that the building is sued for a trip or fall or other accident on site. That basic coverage will keep the building insured up to approximately $1 million.
“Those are your basic meat-and-potatoes policies,” says Robert Mackoul of Mackoul & Associates, an insurance broker based in Long Beach, who adds that while the market for larger policies is relatively tight, “The market itself in general is softening. It’s more competitive, and there are more companies willing to write policies for the medium- or smaller-sized buildings. That said, however, many companies that used to write in Manhattan have either cut back or have reduced their writings, so the fact is that Manhattan is a relatively restricted marketplace. [Property and liability] coverage is broader in the suburbs where there’s more competition.”
As important as those two areas of coverage are, however, most experts would agree that they aren’t nearly enough. Finding the right balance is key. “You want to make sure you have adequate policy coverage,” says MariAnn Cole of the Long Island Coverage Corp. in Hauppauge. “That means being neither over- nor underinsured. For example, you want to make sure you’re covered for your board’s own personal liability, so a good Directors and Officers policy is vital.”
Mackoul agrees, and lists Directors and Officers liability coverage (or “D&O) as a key specialty insurance. “These officers have a fiduciary responsibility,” he says. “They make the decisions for a building and its residents. In New York City, these officers get sued fairly frequently.”
The uncertainty involved in litigation means that having the right amount of coverage is just as important as choosing the right program. That’s why an umbrella policy is key to the mix. “Having $1 million of coverage in New York City is never enough,” Mackoul says. “An umbrella policy can provide up to $100 million in coverage.” As the name suggests, an umbrella policy “covers” other policies, adding to the usual $1 million to $2 million payout of basic liability, property, directors/officers policies and others.
When it comes to co-op and condo staff, worker’s compensation coverage is key, as is securing a fidelity bond or coverage that protects against employee dishonesty. If a manager absconds with hundreds of thousands of dollars, the board and the building’s residents must be protected from that loss or serious issues – both legal and financial – will arise.
Protecting Bricks & Mortar
For the building itself, there are myriad other coverage considerations. The purchase of building systems protection will provide protection for the loss of essential machinery such as boilers and elevators. Other mechanical or structural failures could cause additional problems, making environmental coverage another necessity. Environmental insurance will cover the building should, for example, a leaky heating oil tank cause fuel to seep into the surrounding soil.
“The costs for cleaning something like that up could be hundreds of thousands of dollars,” Mackoul says. It’s important to have enough coverage to get the job done right.
When talking about the environment, it seems natural to segue into the issue of mold. “Mold is the new rage these days,” says Mackoul. In the past, spotting mold in a building didn’t necessarily trigger thoughts of danger. Today, with more residents concerned about potential health risks associated with mold, more buildings are testing the spores they find. “It’s a concern these days, because if there’s a lawsuit, it’s going to have to be covered,” Mackoul says.
An increase in the number of claims these days does not mean a rise in incidences of mold, however. Rather, increased awareness has led to increased action with more people preferring to err on the side of prudence rather than risk. “More people are tearing down walls to do tests than they did in the past,” Mackoul says. “As a result, we have more claims.”
When other building repairs are needed, basic property coverage may not be enough. Something called building ordinance coverage will provide the extra cushion some buildings need in the event of fire or other major destruction. For example, if a portion of a building is damaged and needs to be rebuilt, the insurance company will come in and do an estimate on repair costs. They may determine a price tag of $1 million to get the job done. That, however, doesn’t take into account the fact that the building was perhaps built in 1940 and didn’t have many of the features needed to meet today’s occupancy codes. The building would have lost its “grandfather” status the moment it needed to be rebuilt. When the board begins construction, they will have to add features such as elevators to conform to city codes for handicapped accessibility. “Many cities will pull a building’s certificate of occupancy until those codes are met,” Mackoul says.
And finally, there is the true intangible of the insurance world: nature. When it comes to floods, earthquakes and other unforeseen devastations, there’s a myriad of coverage options.
Despite living in the world’s most famous island city, most New Yorkers probably don’t think too much about flood insurance. For those co-ops and condos along the water’s edge or outside the city proper, however, having flood coverage is a must. “If you’re on the water, you need it,” Cole says. “Flood insurance is available to everyone, and the rates are stipulated by the federal government, so everyone gets the same premium prices.”
Mackoul also suggests broad-form water coverage, which provides protection against water and sewer back-ups – certainly a necessity in the city. “That kind of water problem can cause an awful lot of damage,” Mackoul says. Those problems can include electrical damage and other destruction arising from basement flooding. Water coverage will protect against all of those issues that are not part of the standard building policy.
Sign Me Up
With all the coverage options available, it may seem difficult to determine exactly what your board needs. Buildings should examine their insurance needs at least once a year. That review process should include a look at past coverage. “Always pull out the prospectus and see what was required in the original coverage,” Cole says. “You have to maintain whatever was in the book originally.”
It’s also important to look at how the policies are written. “Various carriers write building policies in different ways,” Cole says. “Building value is the bulk of what the carrier is going to look at when it comes to determining the policy. They don’t want to under or over insure.” It’s vital to make sure that the policy is written in the way that will protect each individual building and its assets best.
Not all buildings will be able to procure all types of insurance at the best possible cost. “Each carrier has their own set of guidelines,” Cole says. “Some have limitations on a building’s value. Some look at past histories. There are a lot of variables.”
The past matters, too, when preparing for the future. If a building has had problems in the past and has not shown a propensity for taking care of issues in a timely or full manner, that can be a problem. “Buildings that aren’t kept up or that have had prior problems may find their ability to get coverage impacted,” says Cole.
And, while it seems as though just about every contingency under the sun is covered by someone, that’s not always the case. There are certain standardized exclusions to any policy, including things such as war, that every insurance buyer will run into.
The key, though, is to get as much coverage as you can to cover as many of your needs as possible. When trouble hits, whether it’s flooding or a liability issue or a fire, the relief of having a good policy in hand that will cover each and every penny of cost incurred will prove invaluable. And, it’ll let everyone involved, from unit owners to the board president, rest easy. You can’t put a price on something like that.
Liz Lent is a freelance writer and a frequent contributor to The Cooperator.