Every autumn, CNYC brings members together for an intensive
Sunday of learning and networking at its annual Housing
Conference. This Conference is the premiere educational
event for shareholders and unit owners in New York housing
cooperatives and condominiums. Professionals, industry experts
and experienced board members share their knowledge in dozens
of workshops, which explore virtually every aspect of operating
cooperatives and condominiums. Video tapes of CNYC’s
television show Co-op Roundtable are show throughout the
day at two locations and in the Exhibit Hall vendors shop
products and services for the building and for residents.
The Conference ends with a convocation where refreshments
are served and special New Yorkers are recognized (see page
1). At CNYC's 22nd annual Housing Conference on November
17, 2002, Robert E. Mackoul, CLU, founder and president
of Mackoul and Associates once again presented his classic
review of homeowners insurance. Following are highlights
of his presentation:
Many cooperative and condominium dwellers tend to think
that they don’t need homeowners insurance. This is
generally due to two basic misconceptions: the first, that
they do not need homeowners insurance because the building
already has coverage; the second, that since banks and mortgage
companies don’t require homeowners insurance in a
cooperative or condominium, such coverage is not a necessity.
In this seminar, Robert Mackoul clearly showed this view
to be wrong on both counts.
Mr. Mackoul has many years' experience insuring cooperatives
and condominiums; he finds that these beliefs are not only
wrong, but they can also be dangerous. Building insurance,
he said, rarely provides coverage within units themselves.
And while banks may not stipulate homeowners insurance as
a requisite when making a loan, that's cold comfort if a
fire or other catastrophe renders your apartment temporarily
The issue, he noted, is not whether you should have homeowners
insurance, but how much coverage you should secure. For
co-op shareholders and condo unit owners, the ideal policy
should cover the basics:
IMPROVEMENTS AND ALTERATIONS
In a cooperative or condominium, improvements and alterations
that are within the unit are the unit owner's or shareholder's
responsibility. These improvements/alterations are not covered
under the building’s insurance policy.
If there is a claim, the building’s insurance company
is responsible for the building itself and the infrastructure,
the pipes and electrical wiring inside the walls. When it
comes to the individual unit, the insurance company is only
required to put the apartment "back to spec";
that is, exactly how it was when it was built. Thus, all
the updates to a specific unit that have occurred since
the building was first built are the responsibility of the
current owner, and not the building. This includes new bathrooms
and kitchens, flooring and carpeting, and molding put in
by the current owner. In addition, the current shareholder
is responsible for all the improvements and alterations
done by previous owners.
If, for instance, the flooring in a unit had been in place
since the building’s inception, that would be covered
under the building’s insurance. However, especially
with older buildings, the probability of having a unit with
all its original features intact is rather low. The building
insurance company will not pay for these alterations and
repairs. This is where homeowner’s coverage specifically
for improvements and alterations comes in; if properly planned,
it will cover all the alterations and improvements in a
unit, regardless of who put them in.
Shareholders or unit owners are responsible for insuring
all of their apartment’s contents and personal property.
This includes everything from furnishings to kitchenware
to clothing – anything that can be moved around, picked
up, and taken, said Mr. Mackoul. What can’t be moved,
such as bathroom fixtures and kitchen cabinets, qualify
as improvements and alterations.
Personal property coverage should be adequate to meet the
cost of replacing items today, as opposed to the cost when
they were originally purchased. If something that is considered
personal property is destroyed and there is no replacement
cost coverage, the insurance company will depreciate the
loss and greatly reduce the compensation for the damaged
item. For example, a television purchased for $500 five
years ago, without replacement costs, would be worth $250
today (assuming that the useful life of a television is
10 years). But with replacement coverage, the insurance
would cover the full cost of a new television. As a rule
of thumb when deciding on the level of coverage for your
new insurance policy, Mr. Mackoul suggests estimating how
much all your personal property and apartment contents are
worth and then doubling that value.
LOSS OF USE
In the event of serious damage to your unit, you will need
money to live elsewhere. This is provided for under a part
of the homeowner's policy called "loss of use".
In insurance policies for cooperatives, limited loss of
use only covers 40 percent of the total personal property
coverage amount. If your property is insured for $100,000,
the maximum loss of use compensation that you could receive
would be $40,000.
If repairs to the unit go on for an extended period of
time, which they often do, this may not be enough to cover
living expenses – especially the high cost of living
in New York. This is why it is best to have an unlimited
loss of use policy. "This feature comes standard with
the plans offered by Chubb and Fireman’s Fund, and
most other companies will allow the homeowner to buy up
their unlimited coverage," said Mr. Mackoul.
Unlimited loss of use coverage may be the most important
feature of your policy. Consider the story of a co-op building
in Manhattan: In the late 1990s, the penthouse residents
decided they did not like the way the roof drains looked,
so they had them covered with screens. In August 1999, when
the city had 6.5 inches of rain in one day, the screens
prevented the water from draining properly. Water rose up
over the parapet walls and into the building, drenching
the underlying units from the ninth floor down to the sixth.
The interiors were so soaked that no work could be done
until everything was dried out, which took some time. Restoration
contractors then reported that all the electric systems
in the building had been destroyed, as was the beautiful
plaster workmanship of this pre-war structure. The apartments
had to be gutted and rebuilt.
The situation only got worse: it took a long time to get
the claim settled and work under way, because the board
of directors rightly insisted that plaster, rather than
sheetrock, be used to restore the building. The board was
correct in expecting insurance to pay for the plaster, as
this was dictated in the original building plans. But it
took eight months to restore the building, displacing those
living in the affected units.
For some, there was good news: the shareholders on the
eighth and ninth floors had unlimited loss of use coverage.
Their insurance provided hundreds of thousands of dollars
to house them in Manhattan hotels. It also paid for them
to eat out and for all the extra expenses that result from
not living at home. After six months, the insurer decided
to reduce the ongoing expenses and found these residents
furnished two-bedroom apartments. But a hard lesson was
learned by the residents on the sixth and seventh floors:
their limited loss of use coverage ran out after about a
According to Mr. Mackoul, most homeowners insurance claims
pertain to resident-related incidents. For instance, if
someone slips and falls in your unit, you may be subject
to a liability lawsuit. But liability doesn't stop there.
If your toilet overflows and damages the downstairs neighbor’s
oriental rug, or if your cat scratches someone in the eye
– all these are potential liability issues.
The answer is personal/family liability coverage. Most
standard homeowners insurance policies include $100,000
of liability coverage, but Mr. Mackoul stressed that unit
owners should not have less than $500,000 in liability coverage
because, "you never know whose Picasso you’re
going to ruin."
THE RISKS OF NOT BEING
When shareholders or unit owners do not have homeowners
insurance, it is not only their problem but it could create
significant problems for the building, as well. If an apartment
is rendered uninhabitable for an extended period of time
and the owner has no coverage to pay the expenses of temporary
living accommodations, the personal cost could drive the
owner into arrears and potentially into default on the unit.
The same could happen if an incident in an uninsured shareholder's
unit affects another unit in the building: the resulting
lawsuit could force the shareholder into bankruptcy.
This is why many cooperatives and condominiums have made
homeowners insurance mandatory for every shareholder and
unit owner, said Mr. Mackoul. If your board considers establishing
such a policy, it should specify the minimum amount of each
form of coverage that the unit owners must take. The amount,
he said, depends on the building; for example, $25,000 is
a good starting point for personal property coverage in
a middle-class building, but a more upscale building may
be expected to have considerably higher minimums. Minimum
coverage for improvements and alterations and for liability
should also be established. "You should evaluate based
on the value of the most expensive unit in your building,
and work backward from that," Mr. Mackoul advised.
An annual monitoring process should also be established
to ensure that everyone is covered.