Property insurance is one of the most important components of protection for common interest communities. It protects the property, association, corporation, board members, and residents from potentially financial consequences in the event of legal liability and physical disasters. If you are unfamiliar with what that exactly entails, the following will serve as an introduction.
Types of Policies
Co-op and condominium associations generally purchase three types of insurance: basic general liability, directors and officers coverage, and an umbrella liability policy.
Basic general liability insurance policies cover property damage, bodily injury, medical payments, defense costs, and personal injury.
Directors and officers (D&O) insurance is a form of liability insurance that covers board members of a corporation or association as indemnification for losses or advancement of defense costs in the event that damages are the result of a good-faith decision made by the board or board member.
Umbrella liability insurance is extra precautionary insurance. It is designed to help protect from major claims and lawsuits, and as a result it helps protect assets. It does this by providing additional liability coverage above the limits of other policies.
Typical Coverage Levels
Alex Seaman, Senior Vice President of national insurance company HUB International, explains that the typical coverage levels for most co-op and condominium associations in the New York area are as follows: “A co-op or condo should carry basic liability insurance coverage with $1 million limits per occasion and a $2 million aggregate.” In insurance parlance, ‘aggregate’ means the total amount and number of claims during the policy period. So, if the insured claimed $3 million in damages in three claims during the policy period—typically one year—only $2 million would be paid under that policy.
“The directors and officers policy should also carry a $1 million limit,” says Seaman. “Co-ops and condos also purchase an umbrella liability policy which increases limits on both general liability and D&O liability. This increase can be anywhere from $5 million to $200 million, depending on what’s needed.”
Seaman explains that “Umbrella policies are generally purchased through risk purchasing groups, or RPGs, which combine top-rated insurance carriers each taking a portion of the risk. This allows associations to purchase high limits of umbrella liability at exceptionally low premiums. For example, a typical 100-unit property should be able to purchase $100 million of umbrella liability for a premium of approximately $4,000 per year. Based on these numbers, there’s really no reason not to purchase limits of at least $100 million of coverage.”
Safeguarding Your Purchase
Insurance policies are usually purchased with the guidance of the managing agent. They generally have the industry connections to provide a reliable insurance agent. Seaman suggests that boards should be aware of the following:
“There are no more than a dozen or so co-op and condo insurance specialists in the New York City area, and they are widely recognized. I strongly advise that associations work with brokers who offer that level of expertise. Another fact that boards should be aware of is that managing agents are legally permitted to request a portion of the commission from the sale of insurance to the co-op or condominium if they have an active insurance license. This is not uncommon. If the manager does not have a license, they’re not permitted to accept any portion of the commission or any other form of compensation for the placement of insurance.”
Insurance is a critical factor in protecting your home and property. Make sure you have the right coverage and that your agent knows when how much is not only enough, but when it’s sufficient to protect you in all situations.
AJ Sidransky is a staff writer at The Cooperator and a published novelist.