Q&A: Law Insurance and Co-ops

Q. Is ordinance or law insurance required in New York State for co-ops? I am being turned down for refinancing my mortgage because our building does not have this insurance. Is it mandated for co-ops? They have all other required insurance. 

                           —Shareholder in the dark

A. “There are a number of different insurance policies co-ops in New York City maintain,” says attorney Pierre Debbas of the Manhattan-based firm Romer Debbas, LLP.  “Whether it is directors’ and officers’ (D&O) insurance (which is a policy that protects board members against any claims or damages brought by a lawsuit based on any of their actions being called to question), flood hazard insurance, or general property insurance. It is not common, nor required, for a co-op to maintain ordinance or law insurance. Such policies pertain to any loss a building may be subject to in the event of failure of a building to perform upgrades or maintain any physical structure up to code or if any damage to the building takes place, the requirement not only to restore it, but to do so up to current codes and ordinances (at an additional expense). While a lending institution may require this insurance in order to approve funding a loan in a co-op, the co-op itself is not obligated to procure it or to abide by the requirements of a bank. The board of directors has a fiduciary duty to act in the best interest of the co-op and it is in their discretion in terms of what additional types of insurance they view to be necessary. Generally speaking, if it became common practice for all banks to make this requirement, then you will see the majority of boards obtain this insurance as to not interrupt any transactions that will take place in their building.”

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