Trial By Fire

It all began on a cold December afternoon in 2008 at the Broadlawn, an elegant Jazz Era compound that houses 121 co-op apartments in White Plains. Workers were repairing the slate roof and repointing the brick façade, and, though the contract stipulated that no acetylene torches were to be used on the job, one worker with the subcontractor was using a torch to speed the drying of mortar before the crew knocked off for the weekend. The flame ignited the roof. Soon the blaze was spreading out of control and a dark black cloud was boiling into the cold winter sky.

This is the story of that devastating fire, which wound up testing the residents, educating them, and, finally, making their co-op stronger than ever.

Impelled to Act

By the time the fire at the Broadlawn was extinguished, the roof and top floor of one of the complex’s 16 buildings were destroyed. Firefighters had pumped 500,000 gallons of water into the blaze. Seven apartments were uninhabitable, and three had suffered significant water damage. An ordeal that would drag on for more than two years was under way.

Even before the fire trucks left the scene, the co-op’s seven board members were coming together in full crisis mode – and making their first mistake. The board’s insurance agent arrived, along with an insurance adjuster he had worked with in the past. The agent assured the board that this adjuster was the ideal man for the impending negotiations with the insurance carrier, Greater New York Insurance Company (GNY), and its adjuster. The directors, feeling pressured to act quickly and decisively, hired the recommended adjuster on the spot.

“There’s a lot of panic and fear at a time like that,” says Chris Vescio, an accountant who was then the board’s president. “I felt responsible for dealing with it... But if I had to do it again, I would take time to talk to [more candidates before selecting] an adjuster.”

On the Monday after the fire, the board met with the shareholders whose apartments had been damaged or destroyed, as well as the co-op’s managing agent, attorney, architect, insurance agent, and the new adjuster.

“The first thing we realized was that communication was going to be the key,” says James Glatthaar, who has been the board’s attorney since 1992. “We called that meeting to reassure people that we were all over the situation and we would get them back into their apartments as soon as possible.”

People who attended the meeting describe it as “hot,” with worried shareholders asking questions about what was covered by insurance – both the co-op’s policy and their own homeowner policies – and two shareholders revealing that they had not renewed their homeowner policies, as required by the house rules. The news was unsettling. The shareholders learned that the co-op’s insurance would pay to restore apartments to their condition at the time of the co-op conversion, in 1982. Any modifications made since then would have to be covered by the homeowner policies. The games were just beginning.

One factor that would turn the games into a chess match was the workmanship of the Broadlawn. Built in 1928, the co-op’s buildings are blessed with architectural details that speak to a past when elegance and artistry mattered — brass hardware, plaster crown moldings, lath-and-plaster walls, and solid wooden doors. On the downside, the 80-year-old electrical wiring and plumbing were archaic by contemporary standards. The board was determined to preserve the building’s integrity and charm; it quickly became apparent that integrity and charm were not covered by the policy.

One thing working in the co-op’s favor was that the contractor doing the roof repairs admitted his subcontractor caused the fire, and wished to continue on the job and make the building whole. The board, which had been happy with his performance until then, decided to keep him on rather than hire a new contractor or use one recommended by their insurance company. It was a question of control. The board had a working relationship with this contractor – and no knowledge of the insurer’s contractor.

“The board didn’t want one-stop shopping – the insurance company’s adjuster bringing in a contractor he’d worked with in the past,” says Jeffrey Stillman, the co-op’s property manager.

The insurance company and the board were soon wrangling over their widely divergent cost estimates, the scope of the work, what was covered under the policy, and when the settlement would be delivered. Eager to get the job moving forward, the board announced it was going to begin repairs in July 2009 with the money offered by the insurer – but would continue to fight for a larger settlement. Here, a bit of luck worked in the co-op’s favor.

“We were sitting on a $1 million line of credit and we had a $500,000 reserve fund because we had refinanced the mortgage in 2008, before the fire,” says Vescio. “That meant we had the wherewithal to move forward on the path we wanted to move on – hiring our own contractor, and exceeding what the insurance company wanted to pay for – without the insurance company’s money.”

Glatthaar, the attorney, says that allowed them to play hardball with the insurance company. “It gave the shareholders a better rebuilt apartment than they would have gotten if we didn’t have those resources,” he adds. “That built up some good will with the shareholders and gained their support in our fight with the insurance company.” At this point, the board, after disagreeing with the adjuster’s advice, fired the insurance agent and started shopping for a replacement.

The co-op’s architect drew up plans that brought the damaged apartments into compliance with contemporary building codes. The rebuilt apartments have state-of-the-art electrical wiring, hot and cold water lines, and waste and gas lines.

One sticking point, which illustrates the fraught nature of the negotiations, was the walls. The board wanted the insurance company to replace them with the original lath-and-plaster. Too expensive, the company argued, offering to pay for Sheetrock walls covered with plaster-like spackle compound.

“The biggest issue was getting materials that were satisfactory to the shareholders,” says Stillman. “The building was built one way, and the insurance company wanted to rebuild it another way. It was an everyday battle for months, the hardest thing I’ve ever had to do. It consumed me for several hours every day for a year.”

Eventually, the board settled on double-thick Sheetrock walls covered with the spackling compound previously recommended by the reconstruction contractor, which turned out to be even more soundproof than the original walls. The affected shareholders agreed to accept this.

“The important thing is that we gave the shareholders the best product we possibly could,” says Glatthaar.

After all the wrangling and delays, residents finally moved back into their apartments in the summer of 2010 – a year and a half after the fire. The shareholders’ claims against the insurers of the contractor and subcontractor were settled in September of that year, and payments were made the following month. In the end, GNY paid $1.8 million, while the co-op kicked in about $200,000. Settlement of the co-op’s claims did not occur until December, and it was paid, at long last, in March 2011.

Lessons of the Blaze

What were the primary lessons that the Broadlawn’s board and professionals took away from the experience?

“You have to have a healthy degree of suspicion over all the companies that work with your insurance company,” says Glatthaar. “I found that they all have relationships and they’re not going to risk those relationships for one co-op.” He called that web of relations “incestuous,” adding, “We were optimistic as we went in, but we became pugilistic.”

A spokesman for GNY Insurance declined to comment. But insurance broker Barbara Strauss, executive vice president of York International Agency, has had extensive dealings with GNY and gives the insurer high marks. “No insurance company is going to pay a loss that may be deemed unreasonable,” she notes. “GNY has contractors who can do the work and provide more favorable pricing when adjusting a loss. It’s very common.”

In the end, Strauss advises, boards can control their destiny by choosing an insurance company wisely. “You get what you pay for,” she says. “If you’re going to cut corners to save money, you may get an inferior product. I advise boards to make sure their broker analyzes coverage differences and knows their carriers. There are some insurance companies that don’t pay as well as others.”

Another lesson in a time of disaster is to expect the unexpected – and get ready to pay for it. “This is a hard thing for co-op and condo board members to understand,” says Glatthaar. “Sometimes you’re caught in a situation where you didn’t do anything wrong and you think the co-op or condo shouldn’t be out of pocket. But you will be out of pocket because your insurance company simply will not pay for certain things – the managing agent’s time, legal fees, architect’s costs.”

And the final lesson: don’t kid yourself. If you think disaster can’t happen to your building, you need to think again. Right now.

IN THE AFTERMATH

What should a board do – and not do – after a disaster? Board members, insurance brokers, managing agents, and lawyers who have had experience with calamities offer advice:

• Though there is pressure to act quickly and decisively, it’s advisable to weigh all options before making a decision. Once made, decisions can be difficult to reverse.

• Don’t price-shop when looking for an insurance carrier. An AAA-rated company will be more expensive, but it’s probably worth the extra cost.

• Make sure your insurance policy has unlimited coverage for “loss of use,” so that displaced residents will be taken care of for the duration of repairs. And check that it allows you to hire your own contractor, so you have control of the repair work.

• Similarly, don’t hire professionals unless they have some experience dealing with disastrous events. “It’s easy to pay bills,” says one board member. “It’s not so easy to deal with an issue like this.”

• Keep detailed records of every invoice, board meeting, e-mail, and inspection report. These can be invaluable when negotiating with your insurer.

• Make sure all residents’ homeowner policies are up to date.