Q. I’m on the board of a complex of three buildings housing about 282 units. Our insurance company is pressuring the property manager to get us to raise our insurance coverage level to cover the cost of completely rebuilding our buildings. Is this legit? They ask us every year, and every year we say no. I was wondering what other co-ops do.
—Feeling the Pressure
A. “Yes, this is legitimate,” said Edward J. Mackoul, President of Mackoul Risk Solutions, an insurance firm with offices in Long Island, Manhattan, and New Jersey. “A number of years ago, insurance companies did a survey and felt that a majority of the buildings they insured did not have enough coverage in the event of a total disaster.
“These days, insurance companies can run software based upon a number of factors obtained from their loss control inspection, such as number of stories, construction of the building, number of elevators, etc. They then generate a report that gives them a general idea of what the building should be insured for within 15 percent of the actual replacement cost. If they feel the building is under-insured, they’ll usually make a recommendation to increase the limit to cover the full replacement cost.
“In this case, the board should either ask their current insurance broker whether they feel the building is adequately insured – or even possibly hire an independent appraisal company to come in and do a valuation of the building. That is the most accurate way to determine the replacement cost. If it turns out they are adequately insured, they can show the insurance company the report, which will deter the company from trying to increase the limit. If it turns out that they are under-insured, the board should really consider increasing the limit to make sure they have proper coverage.
“Most bylaws indicate the building should be insured to 100 percent of its replacement value, so the board has a duty to make sure they do. In the event of a total disaster where they didn’t have enough insurance coverage to rebuild the building, you can be certain there would be a number of lawsuits lodged against the board.”