You Now Require Homeowner Insurance. Great! But How Do You Enforce?

Why is enforcement difficult? Well, in a 100-unit building, say, with a hundred different policies and possibly as many different insurance dates, who's going to keep track of all that? It's simple enough to enter owners' start and end dates into a database that alerts a manager when a policy is about to lapse, but then follow-up manpower is needed for recalcitrant owners who didn't renew or for those who procrastinate on sending proof of coverage.

"We don't have a mechanism for enforcing it," concedes Michael Herzog, a retired accountant and finance manager the co-op board president of the 68-unit Cedarhurst Park in Cedarhurst, Long Island, echoing a lament of many condo and co-ops boards that have required homeowners insurance. "It's complicated, and management companies are not going to ask [owners] to submit their certificates every year. So at this point we have to leave it up to [our shareholders] to comply. Where we do have a little latitude is on sublets," he says. "We will not allow a sublet unless the shareholder and the subtenant each have liability insurance, and since sublets are only one-year leases, after a year we can enforce it again."

Not the Three-Ring Type

The specific mechanism, at least, for enforcing the requirement is for a managing agent and/or a co-op/condo association to be a "certificate-holder," which is done through something called a "binder of insurance" — a document that says coverage is on force on this day and at these amounts.

Many professionals talk about an "ACORD 25 Certificate of Liability Insurance," which provides the same information. That's a standard form published by the Association for Cooperative Operations Research and Development (ACORD), an insurance-industry organization. "But that's normally for commercial lines [of insurance]," says Patricia Batih, vice president of sales and marketing at the insurance agency Mackoul & Associates. "In personal lines, a broker will give a binder of insurance, which says basically the same thing."

Another method is to have the managing agent and/or co-op/condo association listed as an "additional insured," also known as an "additional interest" or an "alternate payer."

"There's a big distinction between an additional insured and a certificate holder," says Don Mayer, an account executive for the insurance brokerage the NIFC Agency (known as Northeast Insurance & Financial Consultants outside New York State). "A certificate-holder is simply the person who requested the certificate. An additional insured is an entity actually named in the policy: they're covered by Mr. Smith's insurance policy just as Mr. Smith's covered." Does it cost extra? "In many cases there is a charge, generally nominal," he says.

Conflict of Interest

However, points out Batih. "Fewer and fewer insurance companies are willing to list the building as an additional insured, because it's a conflict of interest. If there's a debate over whose responsibility the damage was, the homeowners' insurance company is repping both the building and the owner."

There's a trump card to all this, in the case of particularly recalcitrant homeowners. "If a building has an effective insurance program and a thorough provision in the operating documents," says attorney Matthew J. Leeds, a partner at Ganfer & Shore, "a board could say that if a shareholder or a unit-owner does not have insurance or the insurance lapses the building can obtain insurance on their behalf and charge them for it."

And all the normal penalties apply as well: for co-ops, ultimately, eviction under the proprietary lease; and for condos, fines and liens.

Now, once you've got all that sorted out, exactly what type of insurance should they be buying? To find out, watch for part three later this month or pick up the March issue of Habitat.

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