You won’t know how important it is to have good insurance for your building until you need it. Having poor insurance coverage is like walking a financial tightrope without a safety net. Any structural damage or injury to someone in the building can create serious difficulties for your condo or co-op.
With insurance premiums running into the tens of thousands of dollars per year, make sure your building is getting its money’s worth.
“If you are not getting a satisfactory insurance premium, the company is denying your claims, or your premiums are going up as a result of claims, it’s worth considering whether you have the right insurance broker or carrier for your building,” says Steve Wagner, a real estate attorney and partner at the Manhattan law firm Wagner, Berkow & Brandt, who is also president of his 430-unit Manhattan co-op board.
Unfortunately, co-op and condo boards are often given very little time and few options when it comes to renewing insurance coverage for the building. Carve out as much time as possible to review a quote and possibly bring the cost down. It’s also important to thoroughly understand how the insurance works—and how to get the best coverage at the best price.
1) Group coverage can save you money, but only if it’s fairly allocated
Insurance coverage is not like title insurance where the rates are regulated based on the price of a property.
“Companies have a degree of latitude in who they will insure,” says Wagner.
Some property managers arrange insurance policies to cover all of their buildings under one agreement.
“You need to know if you are part of a group or not and how the premiums and coverage are allocated,” says Wagner. “While group insurance might result in lower premiums, the allocation between the members of the group can be shifted so you may be paying more or less than your fair share.” Ask your property manager how the premiums are allocated and request schedules reflecting the premiums paid by each insured property.
A new managing agent can often get a better rate for a building when they take over its operation: “That’s because they use their relationships with carriers to lower premiums as one of their selling tools—they come in and save the building money on insurance. It gives you an idea of the flexibility of the premium,” says Wagner.
2) The secret to getting truly competitive bids
“Insurance companies will often only deal with a single broker for a building, so for a truly competitive bidding process, the trick is to use multiple brokers but limit the number of insurance companies they can reach out to,” advises Wagner.
He recommends having each broker declare which three companies they are going to, tell them they are not authorized to go elsewhere and repeat this with each broker. “In this way, one broker cannot blanket the field and your building can get the most competitive bid,” says Wagner
Keep in mind that shopping around for new coverage every year is counterproductive.
“Insurance companies feel more comfortable insuring a condo or co-op with which they have a long relationship, and there’s also a risk claims will fall between the cracks of two different insurance company policies anytime you change companies,” says Wagner.
3) The importance of securing the right to choose an attorney
If a lawsuit is filed against your building or is threatened against your building, your insurance company may have an obligation to defend the building against the claims, subject to the carrier’s issuance of a reservation of rights letter, which basically reserves the insurer’s right to deny payment for the claim if a court finds that the loss resulted from acts or omissions by the board that are specifically excluded from coverage under the insurance policy.
However, if an insurance company issues a reservation of rights letter, then under New York law, it loses the right to appoint your defense counsel and you have the right to choose your own independent counsel to defend you against the lawsuit or threat of lawsuit.
You have a right to demand your own attorney to handle the case so there’s no risk the insurance company’s lawyer might steer them in a way that leads the insurer to deny coverage. Keep in mind that the insurance company might not agree to pay your lawyer’s hourly rate, so your building may have to make up the difference.
“Provided it’s reasonable, our firm typically accepts the rate offered by the insurance company when there is a claim,” says Wagner.
4) How big the deductible is, and what’s included
You should know how much your building’s deductible is—that is, the amount the building would be expected to pay before an insurance company will step in. Sometimes the deductible will include the legal fees and expense of defending a case, and sometimes it won’t.
“That may result in you writing a check when an attorney is assigned and sometimes there is a small co-payment, around 1 percent. It’s not a major expense, but you should know ahead of time if you’d be required to pay it,” says Wagner.
5) When to submit a claim
Most policies require you to notify your insurance company about claims within a reasonable time frame. Wagner says “the safest thing to do is to notify the insurance carrier as soon as possible, even if all the board has received is a threatening letter.”
If you don’t notify the insurance company, and it comes out that the board had earlier notice, the reservation of rights might result in their refusal to pay. There’s even more of a risk if the building has recently changed insurance carriers because it may come down to a dispute about which company is responsible for coverage.
Wagner says some managing agents don’t put claims in because they feel it will increase premiums, but this is misguided. Insurance is purchased for a reason.
You pay premiums for protection and the policy should be used to avoid or mitigate out of pocket expenses and losses the co-op or condo owners might otherwise have to assume.
“You shouldn’t hesitate to put in claims, even if you do not think they are not going to mushroom into a lawsuit. If the claim does not result in a suit, in most instances it will not affect premiums,” he says. “However, if you know the claim is less than your deductible, it certainly will not be worth submitting a claim.”
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.