The Risk Business: Personal Relationships Pay Off

Since the condominium collapse in Surfside, Fla., almost two years ago, insurance carriers have had a heightened awareness of anything that might lead to a similar outcome. That heightened awareness almost resulted in the loss of a new client for us.

We had taken on a condominium building in Westchester County that was looking for a new insurance carrier because its prior carrier was not renewing its policy. It was just a change in underwriting requirements. We thought we had come up with an unbeatable option, including a very attractive quote for property and liability coverage, which represents 80% or more of a typical co-op or condo insurance premium. The condo board gave us the go-ahead to place the insurance. Then we hit a big bump in the road. 

It’s typical for a new insurance carrier to send an inspector to look over every nook and cranny of a building after the insurance is in place but before the insurance becomes effective. The carrier wants to make sure the building is in satisfactory condition and that there are no obvious sources of potential insurance claims, such as water damage from a leaky roof, clutter in the basement that could catch fire, or cracks in sidewalks or driveways.

In this case, what the inspector found was unacceptable. There was deterioration in some of the concrete in the underground parking garage, evidence of water infiltration that was causing some corrosion to the structural steel in the concrete structural posts. Of course, this is exactly the condition that led to the Surfside collapse. But the Westchester condo board had solicited a study that concluded that some repairs were needed, but nothing was urgent, and the building was stable. Even so, the insurance carrier’s response was: “We’re not going to get into this. We would rather walk away.” This put everyone in a terrible place. The board was counting on the insurance. The property manager is typically a conduit between the insurance broker and the board, so his reputation with the board was on the line as well. 

By law and by the wording of the policy, a new carrier has 60 days from the time the insurance is bound to decide whether or not the conditions of a property are acceptable. We decided we had to have a conversation with the carrier. A lot of insurance brokers do business with carriers on a very arm’s-length basis through email, and nobody really knows anybody. We have good relationships with the major carriers we work with, so we got on a Zoom call with a number of the underwriting and inspection decision-makers at the carrier. 

We said: “Why don’t you give us the opportunity to go to the board and find out what their intentions are in terms of making the repairs sufficient to alleviate any future structural compromise issues. And if they can do it within the 60-day period and you have a comfort level that the matter’s going to be resolved, you can go ahead and insure this building for the rest of the term. If things don’t go that way in the first 60 days, you can get out of the deal.”

They bought it. So we went back to the board and the managing agent and said, “Look, the carrier needs to see a signed contract with a reputable, fully insured contractor within the first 30 days, and the contractor needs to verify that the scope of the work is going to address the concerns that were brought to their attention during the inspection. They also want us to give them progress reports at 30 days, 45 days and 58 days.” The board and the managing agent said: “We’re already working on this. We in fact had intended on signing a contract in the near future. If it needs to be done in 30 days, we’ll sign the contract in 30 days. And we’re going to begin work in that same 30-day period.” 

Lesson Learned

The takeaway here is that co-op and condo boards need to know, especially in this day and age, that they can’t defer maintenance, especially on major capital projects, roofs, structural issues, brick pointing. These are things that have to be done. If you don’t do them, it’s going to lead to major insurance claims and possibly much, much worse.

The other lesson is the importance of good relationships — between the broker and the insurance carrier, and between the broker and the managing agent and the board. When something goes wrong, it’s important for the principals of the insurance brokerage to get involved with the principals and upper management of the insurance carrier. They need to sit down and talk and figure out ways they can resolve this to everybody’s mutual benefit.