YOUR HOME: Insurance Disputes in Apartments
By JAY ROMANO JAN. 11, 2004
Last summer, the internal drain in Stanley Watkins’s through-the-wall air-conditioning unit became clogged and overflowed, resulting in damage to the parquet floor in his Manhattan condominium. Experts called in to assess the damage recommended replacing the entire floor rather than repairing just the damaged portion.
Mr. Watkins filed a claim with his insurance carrier, which agreed to pay for only repair of the floor — not replacement — asserting that the original flooring was the responsibility of the condominium association.
But ”the condo board disagrees with my insurance carrier and will not even submit a claim against its insurance,” Mr. Watkins said. ”We’re caught between two apparently immovable agents here.”
Insurance experts say that Mr. Watkins’s situation is becoming increasingly common.
”Unfortunately, it has become commonplace for disputes to arise between individual unit owners or shareholders and condo or co-op associations when there is a loss to property that can be considered either part of the structure or a permanent improvement installed by the owner,” said Andrew M. Schutzman, president of AMS Risk Management and Consulting, an insurance consulting company in Rockville Centre. ”Resolving such a dispute is not always easy.”
Mr. Schutzman said that in many co-ops and condominiums, there are two basic types of insurance coverage: a policy covering the building itself or the common areas, taken out by the co-op corporation or condominium association, and individual policies taken out by shareholders or unit owners.
What is covered by such policies can vary, however, depending on whether the building is a co-op or condominium and depending on what is spelled out in the governing documents of the building itself.
Dennis H. Greenstein, a Manhattan real estate lawyer, explained that with a co-op, the corporation typically purchases cover age for the building as a whole. That insurance, he said, generally covers the structure itself, but not the personal property, fixtures, appliances or improvements inside apartments. As a result, Mr. Greenstein said, many co-ops now require tenant shareholders to carry their own homeowners’ insurance for property and improvements inside the apartment.
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”In a co-op, the rule of thumb is that if you can see it, you’re responsible for it,” he said, although in many cases the co-op’s proprietary lease will spell out who is responsible for what and carve out any exceptions that may apply. Because of that, some insurance carriers are now asking to examine the building’s proprietary lease before providing coverage to individual tenant shareholders. ”They want to know who is ultimately responsible for damage that occurs to the apartment,” Mr. Greenstein said.
With a condominium, on the other hand, the unit owner basically owns a specifically defined piece of real estate, whose boundaries are set forth in the condominium declaration.
While some condominium declarations provide that the unit owner’s ”real estate” ends at the inside surface of the perimeter walls, floors and ceilings of the apartment, Mr. Greenstein said, others may provide that the unit owner owns beyond the surface of the wall itself. While such differences may seem minor, they can have an impact on who is responsible for damage in an apartment.
For example, Mr. Greenstein said, if a condominium unit owner owns only the space enclosed by the walls of the apartment and the apartment is damaged by a leak from inside the wall, the condominium association’s insurance carrier would probably cover the claim. But if the ownership of the unit extends beyond the wall surface, the responsibility for repair may not be defined by the boundaries of the unit but rather by the language of the bylaws and declarations.
What happens when the carriers themselves cannot agree on who is responsible?
”This happens all the time,” said Bob Owens, president of the Owens Group, an insurance agent in Englewood Cliffs, N.J. ”I’ve sat in on plenty of meetings where there has been plenty of finger pointing.”
In fact, Mr. Owens said, a significant number of such disputes arise from the exact situation described by Mr. Watkins. ”Through-the-wall air-conditioners tend to clog, and when they clog, they leak,” he said.
This means that, as in Mr. Watkins’s case, the floor in the apartment has to be repaired or replaced. And, it turns out, floors are a difficult area to deal with.
Mr. Owens noted that in most cases — both in co-ops and condominiums — the original floor provided with the apartment is considered the property of the co-op corporation or condominium association. However, he said, if a co-op shareholder or condominium unit owner installs, say, tile over the original floor, then the apartment owner would be responsible for the tile while the building would be responsible for the floor underneath it. And in some condominiums, Mr. Owens said, the building is responsible for the concrete slab underneath the floor while the owner is responsible for the floor itself.
There is also the question of who is responsible for damage. In many cases, Mr. Owens said, co-op and condominium owners are required to maintain appliances like air-conditioners. If that is the case, he said, and if an owner’s failure to maintain the unit was the cause of the damage, then it is likely that the unit owner would be responsible for the damage regardless of who is ultimately responsible for the floor itself.
Then there is usually another question to be answered: whether to repair the damaged portion or replace it. ”That’s always a judgment call,” Mr. Owens said, adding that such issues are typically negotiated between the carrier and the insured party.
But why would a building decline to even submit a claim to its carrier, as Mr. Watkins said happened in his case? Because the building does not want to risk an increase in its insurance coverage, Mr. Owens said. ”The more claims they have,” he said, ”the more expensive their policy becomes.”
In addition, he said, once a building submits a claim to its carrier, it is making itself potentially responsible for any damage that is not covered by the policy. ”If they have a deductible, the building itself is going to have to pick that up,” he said.
Still, Mr. Schutzman, the insurance consultant, said that Mr. Watkins should attempt to persuade the condominium association to file a claim. ”If the condominium’s insurance carrier declines the claim by saying that the floors are not the responsibility of the condominium association, that will provide support for Mr. Watkins’s argument that the floors should be covered by his homeowner’s policy.” If the association refuses to file the claim, he said, Mr. Watkins may have no option but to commence legal action.
When the carriers themselves disagree, Mr. Schutzman said, having a reputable insurance agent may pay off. ”The agent or broker should do more than just find an insurance carrier willing to insure you,” he said. ”A good agent or broker should be an advocate, too.”