YOUR HOME: Problems Insuring A Co-op
By JAY ROMANO April 16, 1995
Is your wallpaper insured? How about your new parquet floor? Better yet, how about your downstairs neighbor’s wallpaper and parquet floor? Or that original Picasso hanging over their fireplace?
If you’re a single-family homeowner, you probably don’t have to worry about such details because your homeowner’s insurance typically covers floors and walls, and because your downstairs neighbors are your teen-age children in the finished basement.
But if you own a co-op unit or a condominium, you already know that comparing a three-bedroom colonial to the “real estate” you live in is like comparing an apple to a pomegranate — in your world, what looks simple always turns out to be complicated.
And never so much as when buying insurance, especially for a co-op. “It’s always a little more tricky,” said Andrew M. Schutzman, president of AMS Risk Management & Consulting, an insurance consulting firm in Rockville Centre, L.I.
In a typical single-family home, Mr. Schutzman said, a homeowner would buy one policy that would provide property and casualty coverage for damage to the structure and liability coverage to insure against claims for injuries that occur on the property. With condominiums and co-ops, however, several policies are necessary to protect the interests of everyone involved.
Generally, the co-op or condominium association or corporation needs to buy insurance to cover the structure itself. Indeed, just as in the single-family home, mortgage holders typically require insurance coverage for at least the amount of the mortgage. But that insurance only covers the structural elements of the building, which are owned by the co-op corporation.
“So right off the bat you’ve got problems,” said Robert E. Mackoul, president of Mackoul & Associates, an insurance agency in Lynbrook, L.I. “The by-laws basically say, ‘We’re going to rebuild up to a certain point after a fire, and everything else is your responsibility.’ ”
Figuring out the “everything else,” however, is the hard part. “People need to look carefully at their proprietary leases,” said Emily Fries, a broker for Distinguished Properties Insurance in Manhattan. “Because the lease is going to spell out what they’re responsible for.”
Ms. Fries said that unit owners often do not realize that their proprietary leases exclude coverage for improvements and “betterments” to their apartments.
“Your new kitchen and parquet flooring and marble bath are not going to be considered part of the building in the event of a loss,” Ms. Fries said. “In general, whatever is not original, you’re responsible for.”
But if you are not the original unit owner, how do you know what is original and what is not? John Berczuk, president of New Bedford Management Corporation, a Manhattan management firm, offered a convenient rule of thumb. “If you can see it, you own it,” Mr. Berczuk said. “Anything inside the base coat of paint is yours, including wallpaper. With the electrical system, your wiring starts at the box to your apartment. With plumbing, if there’s a leak in the wall, it’s the co-op’s problem. But if it’s under your sink, it’s your problem.”
Speaking of leaks . . .
“Most of the insurance claims we deal with involve water damage,” said Peter Livingston, a Manhattan lawyer who specializes in co-op and condominium law. “Some of the problems are immense. When a pipe breaks, the damage doesn’t stop at one apartment.”
Accordingly, Mr. Livingston said, his firm encourages all co-op and condominium clients — including individual shareholders and co-op and condominium associations and corporations — to purchase insurance policies tailored to their needs.
Associations and corporations, he said, primarily need adequate amounts of property and casualty coverage on the structure. “One rule of thumb is to look at what it would cost to rebuild it,” Mr. Livingston said. The corporation should also have “loss of income” coverage to pay expenses for three to six months in the event of a catastrophe that makes the building uninhabitable. “If all of a sudden you have tenants who had to move out, they’re not going to be writing out maintenance checks too fast,” Mr. Livingston said. In addition, he said, the corporations need to purchase insurance to cover their boards of directors for actions they take as board members. “Shareholders sue their board members at the drop of a hat,” Mr. Livingston said.
The shareholders themselves, he said, should have their own insurance policies to cover everything that the building’s policy does not cover. “If it’s a tenant shareholder, it’s normally for the fixtures, the appliances, the furniture, and everything else inside the walls,” Mr. Livingston said. “Some tenant policies are more comprehensive than others. Normally, you want to be made whole if there is a loss. If you lose a couch, you want to get a couch.”
Eliot Zuckerman, another Manhattan real estate lawyer, said that unit owners in co-ops and condominiums also need insurance to protect them for damage they might cause to other apartments and for injuries that may be sustained by others while in the unit owner’s apartment.
“It is absolutely vital for all co-op owners to have liability insurance,” Mr. Zuckerman said. “You have no idea what your liability could be. If you have a leaky pipe and don’t know it, you have no idea what the people below you will claim. They could have a valuable work of art hanging on their wall. The damages could run into tens of thousands of dollars.”
How much insurance is enough?
“As much as you can afford,” Mr. Zuckerman said. “In this economy, and with the mindset of people today, it makes sense to have at least $1 million in coverage.” That amount of liability coverage, he said, would cost from $250 to $350 a year.
Shareholders are also encouraged to have coverage for living expenses in the event their apartment becomes uninhabitable. In addition, unit owners might also avail themselves of “loss assessment” coverage to protect themselves in the event the insurance carried by the co-op corporation or condominium association is not enough to pay a claim brought against it and the shortfall is assessed against the shareholders.
In fact, some co-op corporations and boards of directors are now making it mandatory for shareholders to have insurance coverage that picks up where the corporation’s policies leave off.
“The real problems now are with lawsuits between the boards and the unit owners,” said Mr. Mackoul, explaining that when there is damage to an apartment caused by an uninsured unit owner in another apartment, the owner with the damage will often sue the corporation.
“Everything is hunky-dory until somebody gets hurt,” Mr. Mackoul said. “Then they give the bill to the co-op association, the association says, ‘We’re not liable,’ and then the Board of Directors gets sued. It can be a real mess.”