Insurance Protection

Barbara Strauss, a senior vice president with York International Agency, an independent insurance brokerage, is appalled that it took a mortgage refinancing - and then a fire - to introduce the board members of 55 Monroe Boulevard to the necessity of having business interruption insurance. "For shame on the broker for not having it on in the first place," scolds Strauss. "A co-op should not go without it. In every offering plan that we do, you have to have it."

"All the co-ops we know have business interruption insurance, because we insist on it," notes David Schallich, vice president of the risk management division of the National Cooperative Bank. The more common difficulty professionals encounter, say both Strauss and Schallich, is the problem of individual shareholders who fail to purchase adequate homeowner's insurance. It has different labels, says Strauss, "loss of income insurance or renter's insurance, [but] they are all synonymous with homeowner's insurance. And homeowner's insurance covers not only for the contents, but it covers for the loss of use of your apartment as well. If you don't have it, you better have it."

For co-op boards seeking to select an insurance carrier, one way is to check its "Best" rating: a standard set by the rating agency, A. M. Best. The company has a website, www. ambest.com, which rates insurance companies from A+++ to C, the lowest rating. "Just like Standard & Poor's has different categories, A.M. Best does the same thing for insurance companies. If the carrier has a very weak Best rating, it might portend the ability to pay out claims," explains Schallich.

One way co-ops can protect themselves, say industry experts, is to maintain a good record with their insurer. "You don't want to file a lot of claims around the deductible," explains Kevin Callahan, a spokesman for the Virginia-based Insurance Information Institute. "Catastrophic loss is the reason why insurance companies are there. But if you are filing a lot of claims, the company is probably going to decide you're not worth the trouble."

Under New York State insurance laws, commercial insurance carriers such as Highlands have to give 60 days' notice of a policy cancellation, according to Robert Mackoul, president of Mackoul & Associates, an independent broker based in Long Beach, N.Y. "Commercial insurers can drop their coverage for a multitude of reasons, as long as they give you notice of cancellation. The fact of the matter is that Highlands insurance was in trouble. Long Beach happens to be an area close to the shore and there aren't that many companies that want to write [policies] down here to begin with. I think that the magnitude of the fire - plus the fact that Highlands was in financial difficulties - is probably what led to the decision being made to drop [the co-op]."

Highlands, which had a B++ rating in 1998, has lost ground over the years, reports Brian Craig, a support representative in the customer service department of A.M. Best. The company had a B++ rating in 1998, a C rating in 2001 and an E rating in 2002, "which means they are under regulatory supervision," says Craig. When consumers go to check the status of Highlands on the A.M. Best website, the company is not rated. Observes Strauss: "That speaks volumes about the company." Phone calls to Highlands for comment were not returned