After the Flood

After a fire, a flood, or other disaster in your building is contained, you can breathe a sigh of relief because the worst is over, right?

Wrong, according to the people who handle the cleanup afterward. That’s when the hard part begins. Boards and managing agents need to search for a restoration service company to handle the mopping up and repairs, and they need to navigate the quagmire of insurance claims.

The Co-op and Condo Difference

The first and most important distinction is the huge difference between insurance claims on a condo and on a co-op, says Jeffrey Gross, executive vice president of operations at Maxons Restorations. “In a co-op, the building’s insurance is responsible for the original structure,” Gross notes. “The plaster walls the original wood floors, the original doors, and molding. Any changes or improvements made by the unit-owners falls under the unit-owners’ homeowners’ insurance.”

For example, let’s say there’s a leak from 14A that damages 13A. “The building’s insurance is responsible for the wood floors, but the unit-owner’s insurance is responsible for the finish on the floors,” Gross says. Damage to the plaster walls? Building’s insurance. Damage to the paint on the walls? Shareholder’s insurance. “It’s crazy, I know,” Gross says, pointing out that the insurance company for flood victim 13A will go after the insurance company for the offender in 14A, in a process called “subrogation.”

For condos, Gross says the situation is much more cut-and-dried: unit-owners are responsible for everything within their units, whereas the building’s insurance will pay for damages to public areas, behind walls, building-wide piping, basements, rooftops, and elevator shafts.

If He Doesn’t, You Suffer

“Sometimes, you have situations where people do nothing,” Gross says. “That can have an impact on the building’s health in the short and long term.” For example, one flood victim dries out his unit, but the guy above him does not and that slow, seeping moisture comes back to menace the neighbors who have already paid to have work done.

“Over the long term, if there is water damage and people do nothing about it, you can have mold proliferate and [affect] the air quality in the whole building,” Gross says.

To avoid that situation, many savvy boards and managing agents take it upon themselves to hire a remediation firm, work on all the units at once, and then go after shareholders and owners to pay up.

“The managing agents will generally notify each unit-owner of the damage and get their permission to enter the unit to get emergency services performed to mitigate damage to the building,” says Gross.

“What generally happens is that the condo association will request that the invoice gets split up per unit affected, with public areas separated out as well, then the condo association will pay the bill and then charge back each unit-owner for their share, usually by adding it to their common charges,” Gross says. “The unit-owner then needs to submit the charges back to their individual carrier for reimbursement.”

Restoration service companies are paid by insurance. Either a claim is made on a building’s policy or through the policy held by a unit-owner or shareholder. The amount of charges are determined by rates set by the insurance industry that cover everything from the number of air dryers used to the square footage of drywall that has to be ripped out, says Kathleen Hogarty, who works in commercial and residential sales for Servpro Scarsdale/Mount Vernon, a remediation service company.

What the Restorer Does

In the case of fire, after emergency services have been called and everyone is out of the building, Hogarty says building management should call a restoration services company immediately and then notify their insurance carrier.

“We show up at the scene to identify what has happened, where the origin [of the catastrophe] is,” Hogarty says.

But Hogarty says that condo and co-op boards should start thinking about the possibility of an emergency long before they ever face one. That’s why she offers educational seminars for boards and property managers on what to do in the case of emergencies.

“I can take a walk-through on the building and be a second set of eyes to point out problem areas, point out where all the emergency switches are, talk about what needs to be shut down, and when and how to do it,” Hogarty says. “You also should have a good emergency contact list of who to call for what type of emergency.”

In the case of a fire or flooding emergency, Pamela Delorme, president of Delkap Management, says she almost always uses a public adjuster when dealing with a disaster.

“I want someone fighting for my building to get the maximum amount of insurance coverage so there is no out-of-pocket expense to take care of the damages,” Delorme says. Adjusters get paid out of the insurance settlement. “I definitely believe that you are better off for the small amount of money it costs to have a public adjuster who can get the maximum funds available.”

Delorme cautions boards to consider whether or not it’s best to file an insurance claim or to just bite the bullet and pay out of pocket. If you’ve filed a significant number of claims, it can affect your premiums. “When you bid out for insurance and the new company asks for your loss runs, and you’ve had, say, 10 claims in the past five years, you’re going to find yourself in the hot seat,” she says.

The bottom line, argues Barbara Strauss, executive vice president at York International Agency, an insurance broker, is that cleanup should take priority over worrying about who is paying. “I tell my managing agents, ‘Clean it up and then worry later about who will pay for it,’” Strauss says. “You get situations where the building believes that the unit-owner should pay and the unit-owner thinks the building should pay, but you need to get it cleaned up first to mitigate further damages.”