Insurance is always a "hot-button" topic among co-op corporations and condo association boards. Since insurance is an annual expense that is not mandated by a union contract or a city tax assessment, many boards regularly "shop" their coverage to lower a controllable expense. Yet, insurance often represents only a very small percentage of a building’s operating costs. Thus, boards could be found negligent if they fail to have adequate coverage to meet an emergency. [Such a negligence claim would be covered by Directors and Officers (D&O) insurance, incidentally.]
The recent highly publicized Biondi case, based on the refusal of the board to rent an apartment to an interracial couple, has re-focused attention not only on the quality of D&O liability insurance in particular, but on co-op and condo insurance policies in general.
A federal jury decision was appealed all the way to the New York State Court of Appeals this spring. The Appeals Court upheld an order that a former board president, Nicholas Biondi, pay a $124,000 punitive judgment award personally while his building’s D&O policy paid the $230,000 compensatory damage award in the case.
The Biondi ruling highlights an uncoverable risk in New York State, namely punitive damage awards. Public policy in New York State prohibits punitive damage insurance because the availability of such coverage would eliminate the important financial deterrent to misdeeds.
Some offshore insurance companies, which are unregulated by the New York State Department of Insurance, are now offering policies to cover punitive damages. Licensed New York insurance brokers are prohibited from selling these contracts. In short, utilizing good judgment and sound professional advice are the only safe ways to avoid a costly, uncovered loss.