If an electrical fire destroys your newly renovated kitchen, will your co-op pay to replace your space-age stove and slate countertops? If a pipe bursts in your condo and your $10,000 wallpaper is ruined, who pays to fix it? The answers to questions like these may lie in your building's underlying documents and should be considered when buildings and individual unit owners are purchasing insurance.
"Whether your building is a co-op or condominium may make some difference but the biggest thing is to determine from your building documents what the co-op or condominium association is required to insure," says Thomas R. Kozera CPCU, president and CEO of SKCG Group, an insurance provider in Hartsdale, N.Y. "For example," says Kozera, "who is responsible for replacing a wood floor damaged by a leak? In a condo, it is generally the unit owner." But he adds, in a co-op, it may not necessarily be clear-cut. If owner number one puts in a new floor and it is damaged, it will probably be his responsibility to replace it, but if the unit is sold, depending on what's spelled out in the building's documents, that new floor may become the property of the corporation and they would have to replace it."
"It is not always clear in the documents," adds Kozera. "Insurance companies can help, but we are not lawyers; buildings should consult their lawyer for a positive determination. [Governing] documents vary widely and are [often] very difficult to change."
In terms of types of insurance, Kozera says replacement and perils are essentially the same for both condominiums and co-ops. From the insurers perspective, "Insurance companies in general might view condos as slightly better," says Kozera. "In general there is more risk of financial difficulties in a co-op, which would cause them to neglect maintenance, thus creating increased risk for insurers." He adds that there are only a few firms currently writing co-op and condominium insurance, but that those firms are "extraordinarily familiar with New York City."
Buildings, in general are finding that insurers are scrutinizing past claims more carefully. "Buildings with several incidents of water damage may not get insurance because New York State currently does not allow exclusions for mold," says Kozera.