Can You Require Residents to Get Homeowner Insurance? Should You?
March 12, 2013 — True story: Shareholders at one Manhattan co-op voted down a referendum that would have required them to buy homeowner insurance. Then one day some water pipes burst, the building's insurance didn't cover all the damage, and the board had to issue an assessment to make up the difference. Shareholders who had homeowners insurance got reimbursed by their insurance companies for the assessment amount. Those without had to pay out of pocket. And the next time the board tried to require homeowner insurance — the shareholders voted it down again!
Guess you can't insure against shortsightedness. That notwithstanding, condo and co-op boards still may want to mandate that unit-owners and shareholders carry insurance, as many buildings already require. But how?
Should You Require It?
And first of all, why? What difference does it make to the co-op or condo as a whole if residents carry homeowner insurance on their individual apartments?
"It fills in a gap for everybody and the building itself," says attorney Matthew J. Leeds, a partner at Ganfer & Shore and an adjunct professor at Fordham Law School. If an uninsured owner's bathtub overflows, ruining the bathroom of an uninsured owner a floor below, then you have neighbor suing neighbor for damages. And if the overflow creates a moldy mess inside the common walls, the building would either have to fix that at its own expense — possibly suing the first owner to recoup — or else fix it and file an insurance claim, which could raise the building's premiums.
"It goes for a much smoother-running building when everybody has coverage," agrees Steve Greenbaum, director of management at Mark Greenberg Real Estate. "God forbid there's a claim between neighbor and neighbor, the co-op doesn't have to get involved. Instead, they call their own insurance companies."
It's a much smoother-
running building when
everybody has coverage
"Our concern as a co-op entity is that [shareholders] at least have liability insurance, because a worker in someone's home could trip and fall and then they're going to go after the contractor, go after the owner, and go after the co-op," says Michael Herzog, a retired accountant and finance manager who's been board president of the 68-unit Cedarhurst Park in Cedarhurst, Long Island, since its 1988 conversion. "So any insurance [shareholders] have will protect the co-op."
Can You Require It?
But while recognizing that there might be good reasons for homeowners to carry insurance — aside from the intrinsic fact that it protects the individuals themselves — co-op and condo boards are often reluctant to require it.
"Some people either don't focus on what would be good for them or they find it paternalistic," says Leeds, "and some people think it's an added expense" they can't or don't want to pay. A basic homeowner policy for a middle-class apartment in the New York area costs about $350 to $600 a year, or roughly $29 to $50 a month.
Yet both co-op and condo boards can indeed mandate it. While it's possible to do so with a board vote that adds it to the house rules and regulations, it stands up better when challenged by contentious individuals if you amend the building's operating documents — the co-op's proprietary lease, the condominium's bylaws — which generally requires a supermajority of homeowner votes.
Before you go to the trouble of arranging that, be sure to check those selfsame documents first. The requirement might already exist, unbeknownst to boards and homeowners. And if it doesn't, get outside professionals to help convince homeowners to amend the rules.
"People don't realize their exposures, and that's the key point," says Patricia Batih, vice president of sales and marketing at the insurance agency Mackoul & Associates. "Maybe have an insurance broker come out and speak to the homeowners, like fire marshals or police [liaisons] or other professionals do."
Should you bother, given that banks and other lenders already require homeowners insurance in most cases? Yes, because otherwise, you just don't know if it's true in all cases. "I can't imagine a bank lending money to someone without making sure they have insurance," says Greenbaum. "But I've seen it. I've seen it a lot."
To see how boards can enforce this requirement, watch for part two later this month or pick up the March issue of Habitat.
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