Insurance Gaps: Happen More Often Than You Think

Surprise, surprise. We had just become the insurance broker of record at a beautiful, well-maintained oceanfront condominium. While filing applications to renew its umbrella insurance — which provides additional coverage beyond property and general liability coverage — we indicated that the condo maintains a beach, which is one of its amenities. The carrier came back and advised us that it was unaware of the beach exposure. Because that did not fit its guidelines — beach exposure is not something most insurance companies cover — the carrier would not renew the condo’s insurance.

Out on a limb. We had to scramble to find a new carrier. In the meantime, the lack of coverage left the board at huge risk if someone got injured or drowned. And there were other gaps in coverage. The association had some boats and kayaks and lifeguard equipment that were not included on its property insurance policy, so we had to make sure that those were included. In addition, the general liability insurance had an event exclusion. The condo sponsors multiple events, and should someone have gotten hurt at an event, the condo would not have been covered. So we had to obtain a separate events policy as well.

Origin story. So how could these omissions and oversights happen? The beach exposure could have been omitted on the original insurance policy submission, which was then renewed year after year with the incorrect information. In this case, the carrier didn’t inspect the property and relied on the information provided by the previous insurance broker.

This happens more often than you would think. I’ve seen amenities that are left out, incorrect descriptions of the building’s construction, and incorrect unit counts. A big error we often see is incorrect owner-occupancy percentage. A lot of carriers have strict guidelines when it comes to the acceptable number of owner-occupied units versus rental units. And if that information is not correct, you can also have a huge issue in regards to coverage because you can potentially be with a carrier who would not have written your insurance if it knew that you had a high rental percentage.

Cost crunch. I’m thankful that we were successful in replacing the condo’s coverage. But unfortunately, we had to lower the coverage limits. The condo had maintained a $50 million umbrella policy, but the most we were able to get was $25 million. At the same time, the condo’s premiums nearly tripled. Going over things with the board, we all agreed that the $25 million limit was sufficient. In the end, the condo was appreciative that we were able to correct the deficiencies and make sure they were covered properly.

Go with a specialist. My advice? Review your coverage, and find a broker who specializes in co-ops and condominiums. That person is more likely to ask the right questions than someone who’s a generalist. Be sure to have your broker conduct a virtual or onsite pre-inspection — and not just when you’re switching carriers, but every time you renew. That’s the best way to ensure your broker and the insurance company have all the right information so your building is adequately insured.