How Much Liability Insurance Can Co-op and Condo Boards Require?

Most New York City co-op and condo boards typically require shareholders and unit-owners to carry $300,000 to $500,000 in liability insurance, Jeffrey Schneider, president of Gotham Brokerage, tells Brick Underground. The cost is about $25 to $50 per year and is purchased as part of a comprehensive homeowners insurance policy. 

At a minimum, co-op boards need to add the insurance requirement to the building’s house rules in order for them to be legally enforceable. “This is something that boards can impose without a shareholder vote, but some boards choose to have a shareholder vote anyway,” says Dean Roberts, a partner at the law firm Norris McLaughlin, noting that house rules are incorporated into the proprietary lease.

There is some disagreement, however, whether putting the requirement in the house rules goes far enough. 

Jeffrey Reich, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas, says a building’s proprietary lease must also specifically authorize a board to set insurance requirements. “In the same way that a court will not enforce a sublet fee or flip tax imposed through a house rule," Reich says, "it is our understanding that a court would not enforce a unilaterally imposed requirement that shareholders be obligated to spend a not insignificant amount of money on an insurance policy.”

Reich notes that most proprietary leases are silent on the matter — a surprising fact to both the boards and shareholders of the buildings he advises. Updates to a proprietary lease usually require a super-majority shareholder vote.

Can boards set specific numbers? “Boards can set limits and deductibles so long as they are ‘reasonable,’ which is a very fuzzy number,” Roberts says. “A Park Avenue co-op can likely set a higher limit than a Bronx HDFC. The standard is driven by the facts in the individual co-op building, especially if there have been a lot of liability issues with individual apartments, such as one shareholder flooding another.”

Adds Schneider of Gotham Brokerage: “While some buildings set minimum limits for coverage on contents and for an apartment’s interior structure, that’s rare.”   

Boards are typically most concerned that each apartment owner has enough liability coverage.

“A co-op or condo wants minimal involvement in water-damage disputes between neighbors,” Schneider says. “If you flood out your downstairs neighbor because of your negligence, your personal liability coverage should take care of the damage. If you are not negligent, everyone [needs to rely] on their own property coverage. The insurance companies” — not the board — “can fight out questions of fault and ultimate responsibility for the damage.”

And boards like to keep it that way.