CONTROLLING INSURANCE COSTS CO-OP CONDOMINIUM

The way for a board to control its insurance price increases is to introduce competition, and to request a competing bid for the renewal program. You should be careful not to do this every year: Insurance negotiation is still a people business. If an insurance company underwriter receives a submission to quote every year, or receives separate submissions from more than one broker on behalf of the same client, that underwriter may feel that it doesn't have a chance to actually write the business, or that it is being "shopped" every year.

Consequently, the submission might go to the bottom of the pile with little effort or attention devoted to it. If the board wants to put its insurance program out to bid, a good recommendation to achieve the most effective results is to do so every three years, unless other circumstances dictate doing so sooner.

Lines of Coverage

Typically, condo and co-op boards deal with insurance in one of two ways: They do it themselves and handle all aspects of negotiation with their agent or broker, or they rely on their management company to do so.

In my building's case, we rely on a management company to do most of the dealing with our broker. There is a distinct advantage to this, because usually a management company manages numerous buildings (and presumably handles all their insurance) and they are able to use this as leverage when negotiating premiums, as well as in negotiating coverage terms favorable to the building and its board.

Without getting into the minutiae, there are several lines of insurance that comprise a typical co-op / condo building's property / casualty insurance program:

• Directors & Officers Liability (D&O insurance)

This is the line of coverage many board members care most about, as it protects them and their assets against shareholder suits. One key component of D&O is employment practices liability, or EPL, coverage, which should cover discrimination, a key exposure for a board that oversees the resident application process. Some D&O providers offer human resources web training to policyholders.

This line of coverage is usually not expensive (typically, less than $5,000 annually for a $1 million limit). It is extremely important that this policy be scheduled as an "underlying" policy on the building's umbrella liability policy (see below). This allows the D&O policy to be subject to the full limit of the umbrella policy, often $25 million or more, depending on the limit purchased, thereby affording maximum protection to board members.

• Property Insurance

This "first party" policy covers the building itself for perils such as fire, lightning, earthquake, and flood. In addition to the physical structure, property insurance also includes "business interruption" coverage, which insures income generated by the building, such as rental income and maintenance fees. Limits for both property and business interruption need to be precisely calculated and reviewed for accuracy regularly, as they may be subject to scrutiny by banks making loans to the building. If a building is not insured adequately, in the event of a loss, the board could be held accountable.

• General Liability

This is known as "third party" insurance and covers the building for liability claims brought by third parties – typically slips, falls, and water damage types of claims. Coverage for co-op and condo buildings is usually written on a first-dollar basis (i.e., no deductible), and standard primary limits are $1 million occurrence/ $2 million general aggregate (the most the policy will pay during the annual term). Key coverages that should be included are lead paint liability and mold / fungus.

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