Filling In the Gap

Truth be told, insurance is often something that most board directors don’t really understand. One sticky problem is when there’s an event that should have been covered by a homeowners policy, but the person didn’t have one or let it lapse. Can co-ops and condos require owners to have insurance for their apartments?

Yes, but there’s legal work that needs to be done because the requirement should be drafted by an attorney and has to be approved by a majority of owners. There is no direct credit for the co-op or condo’s insurance, but the requirement allows boards to increase their building’s deductible because part of it can be put on the owners. Let’s say a board increases the deductible from $5,000 to $10,000. In the event of a claim, it can assess all the owners for a portion of the deductible, but owners can have a loss assessment policy under their homeowners policy to cover that assessment. Raising the deductible also restricts smaller claims being put in, which helps the building’s loss history. Keeping claims off record is extremely important because in the long run, that will reduce the building’s insurance premiums. 

Let’s say a co-op or condo has this requirement. How do you keep track of everyone’s policy? 

Boards need outside help. They can do it, but it’s a lot easier to pay an outside company that does this kind of monitoring because it really needs to be an ongoing process. For example, say you require everyone to supply proof of coverage by April 1. Even if they do, the problem is that their coverage doesn’t expire on the same date. Someone might have a policy that expires May 1 and then let it lapse, and the board is not going to know that until the next April. You have to get each owner’s expiration date, monitor them over the year and get copies of renewals to make sure insurance is in effect.

These companies have an automated system that emails people when their due date comes up and tracks the responses. I don’t recommend having property managers do it because they request proof just once or at best once a year, and that’s it. Also there are plenty of instances where people either don’t respond and it’s not followed up on or are binding the policy and it lapses a couple of weeks later for nonpayment.

As far as cost, the service is priced per unit. I’ve seen smaller buildings with 20 to 50 units pay somewhere along the lines of $1,250 to $1,500. At buildings with 75 to 100 units, the cost is probably $2,000 or so, and it goes up from there. 

If a board wants to require everyone to carry a homeowners policy, can it ask its insurance broker to offer a bulk rate for all the units in the building? 

That is not really doable for a couple of reasons. On the owner’s side, if someone has a certain carrier for their home, auto and umbrella coverage, you can’t force that person to go with a different company for their homeowners policy because that will affect their auto and umbrella insurance. On the insurance company side, a lot of carriers don’t want 100 units in the same building because it is too big of an exposure. So owners should approach their own insurance broker and deal with someone they feel comfortable with.

So would you advise boards to pursue some kind of resolution that requires all the owners to carry a homeowners policy?

Absolutely, for a number of reasons. One, it keeps the peace. If two owners do not have insurance and there is a claim involving them, there is going to be a problem. And the lawsuits might fly and they might sue the board. Number two, as we talked about earlier, is that it can end up lowering the building’s insurance premiums in the long run.

What kind of sales pitch can a board make to get people to pass a requirement that everyone has to have a homeowners policy?

It’s pay now or pay later, because one way or the other, you are going to pay. If a building has a lot of claims and its insurance premiums go up, who’s paying for it? The owners are — either in the form of higher maintenance or common charges or an assessment. So you might as well institute a homeowners insurance requirement because it is going to allow the co-op or condo to do different things that can keep those premiums lower.