The Limits of Flood Insurance

Hindsight Is 20/20

It is not easy preparing for 40 feet of floodwater. But now that the staff of 200 East End have been through the unthinkable, they know what they would do differently next time – and what they would do the same. “You can’t over-prepare and you can’t over-communicate,” says Neil Davidowitz, president of Orsid Realty.

1) Prepare to be in the dark for a week

Superstorm Sandy was New York’s first real experience with a long-term outage. Staff at 200 East End Avenue quickly ran out of emergency supplies like batteries and lanterns for hallways. With the building plunged into darkness, locating extra parts proved a difficult and exhausting task. Stock up on enough supplies to last a week, including batteries, backup equipment, lanterns, water, and food.

2) Compile a list of e-mail addresses for every resident, and keep it current

The biggest frustration for shareholders was the lack of communication. With residents and staff dispersed in temporary housing across the city, communication became a major challenge. The building set up an e-mail list, but it took several days before the board and management could track down all the e-mails. Collect e-mail addresses from residents early and update the list frequently.

3) Get keys for every unit

The staff had to gain access to each unit in the building to restore gas service. But with residents staying elsewhere, that was not easy. Get keys for each unit and make sure they are up to date before a storm hits.

4) Urge residents to read and understand their insurance policies

Residents were devastated to learn that their damaged belongings were not covered by their individual insurance policies. Urge residents to read their policies carefully so they are not shocked when damage occurs. “So much of it is semantics,” says Robert Mellman, a property manager at Orsid Realty. Board members should also fully understand building policies so they’re not caught off-guard, and consider flood insurance if necessary.

5) Keep a list of all the elderly and infirm residents

Many residents had to be carried out of the building. Some were unable to evacuate. Knowing which residents will need extra help in a disaster can save lives.

6) Staff up

If you know a disaster is imminent, call in backup before the storm so all hands can be on deck.

7) Raise the elevators and shut down critical systems quickly

As the waters rose, building staff made a critical decision to raise the elevators to the seventh floor and shut down the mechanical systems. Mellman credits their efforts with reducing damage, particularly to the elevators.

After the storm, after the surge, after the wind has died, after floodwaters recede, the finger-pointing inevitably begins. “We did not have flood insurance,” says Dr. Janie Simmons, an anthropologist and AIDS researcher who serves as board president of Shoreview Condominiums at Rockaway Beach in Queens, one of the many New York City communities battered hard by superstorm Sandy. “Legally, we were not in a flood zone,” she says. “There hasn’t been a flood in most of the Rockaways for more than a generation. We were not required nor were we ever offered flood insurance.”

But that hasn’t stopped the finger-pointing by some of the homeowners of her 20-unit condominium on Beach 92nd Street, demanding to know why there was no flood insurance. “It’s very easy in hindsight to say having it makes a lot of sense,” she says bitterly.

And Shoreview did have hurricane insurance, ironically enough. “But there’s something like a $90,000 deductible and it basically covers wind damage. It’s hard to tell what was wind and what was the surge of the ocean.” As Shoreview and countless other co-ops and condos keep digging out and trying to rebuild, they will look to their insurance carriers and learn, often to their surprise, what is and isn’t covered. Even those that do have flood insurance might find, for instance, that it doesn’t cover salaries for the staff, who may have to be paid even though the co-op may be strapped for cash. Why strapped? Because some courts have ruled that co-op maintenance cannot be collected while the building is uninhabitable. (This is open to debate, however, as other courts have ruled that, even when the property is uninhabitable, maintenance must be paid. The statutory definition of uninhabitable includes the absence of a working kitchen or bathroom.)

Many co-op boards “didn’t realize” that there was any controversy about whether they could collect maintenance during this time, says James Samson, a partner with the law firm Samson Fink & Dubow. “They didn’t know. It was a real shock. An abatement applies where there is a flood or another casualty that makes the building uninhabitable, yet there are many expenses that continue to accrue that someone has to pay for and insurance doesn’t cover. We need interruption of business insurance,” he says. “It doesn’t exist.” So what does exist? What can you do or buy that can better prepare you for the next “hundred-year flood” – which could arrive next year? And in the meantime, what resources are available right now that can help restore your building – and your lives?

Your Next Stop … the Flood Zone

It starts with the National Flood Insurance Program (NFIP), created by Congress in 1968 to offer federally subsidized coverage to homeowners, renters, and business owners through insurance companies – but only if your local community participates in the program. They do that by adopting and enforcing ordinances that match or exceed the flood-risk minimizing requirements of the Federal Emergency Management Agency (FEMA).

“Most buildings, if they’re in a flood zone, have to have flood coverage,” says Don Einsidler, president of the property management firm Einsidler Management. “Basic flood coverage is through the federal flood program written by various insurance companies.”

In fact, adds FEMA spokesman Ed Conley, “If you live in Zone A, the hundred-year flood plain, then you’re required through your mortgage lender to purchase and maintain flood insurance when you have a federally backed loan on your property.”

What’s Zone A and how do you know if you’re in it? Also known as a Special Flood Hazard Area, it’s a location with at least a one percent chance of flooding in a given year. You can look up whether you’re located in Zone A through FEMA Flood Insurance Rate Maps at FloodSmart.gov, the NFIP website.

A co-op or condo association’s NFIP-backed flood insurance covers only the structure itself, including common areas and including damage from a storm surge, according to the Insurance Information Institute. It doesn’t cover damage caused by floodwaters to the personal belongings of individual condo or co-op owners. Neither do standard homeowners’ policies – although homeowners can purchase what’s called an NFIP contents policy.

Government Handouts

But let’s say your building has no flood insurance. What then? Then you turn to free, FEMA-backed repair and reconstruction programs administered by New York City and New York State. You turn to the Small Business Administration for low-cost loans. And you do assessments equal to a portion of the FEMA grant money given to your individual homeowners.

Many people misconstrue FEMA’s role. Its primary aim “is to help make sure people have a safe place to live temporarily,” says Conley. “Homeowners and renters who have been impacted by the storm can register with FEMA, and if they’re eligible we can help with grants for emergency housing needs and in some cases for personal property and essential personal items lost by the storm.”

This includes help for both condo unit-owners and co-op shareholders – but not for condo and co-op boards staring at devastated common areas. Co-op and condo associations aren’t entitled to FEMA grant money.

In response, politicians including Representative Steve Israel and State Senator Tony Avella called in January for FEMA grants to be made available to residential cooperatives. Yet their statements specifically excluded condominium associations -- and created confusion since co-op and condo residents already are eligible for grants. The thrust of the statements appear to be to allow co-op boards to seek grants for repair of common areas.

However, the call for change leaves condo boards in the cold. “We are just focusing on co-ops because that’s who came to us,” says Israel’s spokesperson. “We have a bunch of constituents who live in co-ops and requested this help. It seems that condos are classified in the same way,” the spokesperson notes, “but we haven’t heard from anyone regarding condos.” Likewise, said Avella’s spokesperson, Avella’s statement “just goes to co-ops.”

That doesn’t mean federal help isn’t available for those buildings. Indirectly, FEMA is contributing funds to affected New York City condo and co-op boards through New York City Rapid Repairs, a free program to help make Sandy-related emergency repairs such as “restoration of heat, power and hot water, and other limited repairs to protect a home from further significant damage,” according to the city website.

“FEMA will be helping to reimburse the local governments for their eligible costs, at 75 percent,” says Conley. “We’re not administering or managing the program – in terms of eligibility, that’s being defined by the city and you would not apply directly to FEMA. But indirectly, in terms of covering costs, we’re involved.” Long Island, similarly, had FEMA’s new Sheltering and Temporary Essential Power (STEP) pilot program (for which the deadline for applying was December 19).

“I applied to everything I could,” says board president Simmons. “I’m still applying,” she says. “The Rapid Repairs program, as soon as phones opened to apply, I applied.” She was rewarded with teams of electricians, plumbers, etc., who were, she notes, “highly professional and really terrific. First they came in to assess what had to be done, and made it clear what they could do, which is dismantle old water heaters and boilers, take them out, and put in new ones. The cost [to the city and FEMA] is going to be about a quarter of a million dollars to help us.”

Taking Care of Business Loans

Concurrently, boards can apply for low-cost Small Business Administration (SBA) loans “for up to $2 million for funds to repair damage to common areas,” says Michael Peacock, an SBA spokesman. Indeed, even apartment owners can borrow up to $200,000 individually to repair or replace their damaged units. “Most [co-op and condo] associations are set up as private nonprofits, so the rates for them generally are three percent,” Peacock says. “For the unit-owners, the rates are generally as low as 1.688 percent for as long as 30 years.”

Not only that, but they can tide you over for the weeks or months it may take before any insurance claims get settled. “Quite often,” he says, “we’re able to approve an applicant for the full amount of the damage prior to their settlement with their insurance company, and then we’ll accept an assignment of the insurance proceeds.”

Assessing the Situation

Finally, boards can help raise money to repair common areas through the tried-and-true method of a special assessment – though special care must be taken, since most homeowners will have been whomped with a big financial hit themselves.

“All the board can do is have an emergency special assessment, a relatively small one of $3,000 or at most $4,000,” Simmons says. Mitigating this somewhat is that co-op shareholders and condo unit-owners can, in turn, apply for a low-rate SBA loan to cover the cost of the assessment, says Peacock.

And while business-interruption insurance may not exist for co-op and condo associations, the SBA does have “what we call an economic-injury disaster loan,” he says, “basically for [a board] to continue to pay the normal monthly operating expenses. There are two basic loans: one is for physical damage and one is for economic injury.” The $2 million cap remains the same, however, whether you take out one loan or both.

Shareholders and unit-owners can also file with their homeowners’ insurance to recoup the cost of an assessment. “I learned this years ago with a building on the East Side that had flooding due to frozen plumbing,” says attorney Samson of a long-ago client board. “And we had several hundred thousand dollars in non-covered costs,” prompting an assessment. But in this particular building, individual homeowners weren’t required to carry apartment insurance, and in fact had voted not to have that requirement. “And so now those people with homeowners’ insurance got their assessment paid back by their homeowner policies – and the other people [who] should have voted yes [to requiring homeowners’ insurance] didn’t. And the punch line,” he says, “is that in the next meeting, they voted it down again!”

Ultimately, says Simmons, “The association is required to rebuild. And morally we feel we have an obligation to rebuild. And in practical terms we have to rebuild because we don’t want homeowners to walk away.”

But this ordeal also taught her about another kind of insurance: as sentimental as it might sound, the insurance of community. “The volunteers saved us,” Simmons says. “They saved the day, they saved our building. Veterans flew in from all over the country – they set up shop, we went there for help, and they sent an army of volunteers. People came from all over the city: ‘I love the Rockaways – what can I do to help?’ And they came back day after day and brought people with them. One day I went to Rockaway Taco and the owner said, ‘Janie, what do you need?’ I said, ‘Bodies.’ The next thing I knew, he’d sent over people. We even had people laying over at JFK, coming by in rented cars saying, ‘I’ve got four hours – how can I help?’”