Q&A: Unnecessary Insurance?

Q I live in a co-op complex of a few hundred apartments. After 60 years without apartment insurance the present board suddenly decided that all shareholders must carry insurance. This translates into an additional expense of approximately $300 for each cooperator and a hardship for many of them. Does the board have the legal right to mandate such insurance without consulting the shareholders first?

—Uninsured Shareholder

A “Your question raises an interesting issue that has not yet been answered in a published decision by a New York Court,” says attorney Joe Colbert of Kagan Lubic Lepper Lewis Gold & Colbert, LLP.

“The issue is whether a cooperative board of directors can impose an insurance requirement on shareholders as a house rule addition or whether a proprietary lease amendment authorized by a shareholder vote is required. You used the word "consulting" with shareholders in your question, but I think you meant obtaining shareholder approval. Most cooperative boards have the power to add house rules by a board vote without consulting shareholders or seeking their approval. However, most proprietary leases can only be amended by a super majority vote of shareholders which is typically difficult to obtain. It is generally much easier for a house rule to be adopted by a board than for a proprietary lease to be amended by shareholders.

“A place to look for an answer to your question is your proprietary lease. There may be provisions therein that allow the board the ease of adding the insurance requirement in a house rule. For example, there may be a provision concerning insurance in the lease, opening the door for an argument that the house rule is a clarification of that existing provision which may be permissible. Some attorneys argue however that, as a rule of thumb, if a financial obligation is being imposed on a shareholder that does not already exist in the lease, then a lease amendment is required. Since paying an insurance premium is a financial requirement that likely did not already exist under the lease, those attorneys would argue that a lease amendment is required. One lower court supported that proposition where the board imposed a flat late fee by house rule rather than lease amendment. The Court there held that the provision was not enforceable because the board altered the financial rights of the parties under the lease without utilizing the amendment provisions in the lease.

“We will not have a clear answer to your question until a cooperative-shareholder dispute over this issue is decided by a New York Court in a published decision.”

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