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,” says New York City real estate attorney Steven Wagner, a partner at Adam Leitman Bailey, P.C. who represents co-op and condo boards and owners.
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, you need to 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,” Wagner says.
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. You need to 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 what they will cover,” Wagner says. 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."
Group insurance might result in lower premiums, but 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,” Wagner says.
2) Use multiple brokers but limit the carriers they can contact
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. “It’s customary for a broker to notify the entire industry that they are the exclusive broker for the building. This can limit the competitiveness of the bidding process,” Wagner says.
By selecting more than one broker and having them each declare which company they will approach, you will get the most competitive bid. Brokers will maximize their relationships with carriers to your advantage.
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,” Wagner says.
3) Secure the right to choose an attorney
If a lawsuit is filed or threatened against your building, your insurance company may have an obligation to defend the building against the claims. The initial decision will be made based on the allegations in the complaint. If it is unclear whether the claim will be covered, the insurance company will hire an attorney to defend the co-op but will reserve their rights to refuse to pay, if it is ultimately determined that the claim is not covered.
When an insurance company does this, you have the 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,” Wagner says.
4) Know the size of the deductible 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,” Wagner says.
5) Importance of prompt notification of claims
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, it 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,” he says.
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, a partner at Adam Leitman Bailey P.C., has more than 30 years of experience representing co-ops, and condos, as well as individual owners and shareholders. You can submit a question for this column via email or if you’d like to arrange a free 15-minute telephone consultation with Steve send an email or call (212) 584-1973.
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