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adjustment of losses was one of the principal reasons for adopting the Uniform Condominium Act.7
My Recommendations If the coop or condo agreement does not call for original-specifications coverage or is unclear, suggest changing the agreement. Insurance requirements often read as if they were drafted in the middle of the last century by people who were getting paid by the word. It’s common to see currentlydrafted insurance requirements that call for “extended coverage,” despite the fact that extended coverage endorsement hasn’t been used by standard insurers since 1986. Amending an agreement can often require a super-majority of the unit-owners—not easily done. Sometimes the insurance provisions are so ambiguously worded that it’s worth the effort. To just change to original specifications, I’ve found that some insurers will accept a resolution passed by the condo board as a sufficient amendment. Check with the insurer to be sure that they’ll accept that as triggering coverage for original specifications, if your client goes that route. Coincidentally, just as I was finishing up this article, one of our clients sent us the insurance requirements for a new condo to review. Surprisingly, I like it. Here’s an excerpt: The all-risk hazard policy shall cover the interests of the Board of Managers and all Unit Owners and Permitted Mortgagees, as their interests may appear. Coverage shall be for 100% of the insurable replacement cost of the Improvements (excluding land, foundations, excavations, footings and other items normally excluded from such coverage), including fixtures (to the extent they are Common Elements), building service equipment and supplies, and other personality comprising Common Elements. The hazard policy maintained by the Board is not required to cov-
Setting the amount correctly can reduce the amount of insurance by 10 percent or more. Nothing makes you look more like Super-Insurance Man or Woman than showing clients how to reduce their insurance cost.
er, but may cover, in the sole discretion of the Board of Managers, improvements and betterments made by Unit Owners in their Units, fixtures that form part of Units and other interior elements of Units… (emphasis added)8 This lets the Condo Board choose bare walls, original specifications, or all-in coverage, whichever they feel fits their needs the best.
Setting the Amount of Insurance for Unit-Owners If your client is the unit-owner, find out what their responsibilities are and tailor the insurance accordingly. (Did I mention that you want to check the insurance provisions in the coop or condo agreement?) This can be a win for all parties. The producer writes more insurance and has more satisfied clients, the insurer collects more premiums and, when the loss occurs, the insured gets reimbursed promptly and adequately. I’ve asked three brokers that I know how they set the amount of insurance for condo or coop unit-owners. Two passed the exam with flying colors; they ask HO6 applicants about the need for real property coverage—one even suggests $100 to $150 sq. ft. if the unit-owner is responsible for the interior. That’s high, but high-end kitchens and baths renovations in our area can run $100,000 to $200,000 or more.
8 From an Offering Plan drafted by Erica R. Forman, Esq., Bryan Cave LLP, New York, NY and used with her permission.
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Setting the Amount of Insurance for Coop or Condo Associations Setting the amount of insurance for coop or condo associations is more problematic. It’s not unusual to find a new coop or condo that’s over-insured. The amount of insurance was set using details supplied by the developer and the developer’s costfigures included the cost of interior work in the unit. If that’s the obligation of the unit-owner, it should be deducted in setting the amount of insurance. I’ve even seen cases where marketing costs were included in the building-cost calculation. The same problem often exists with older units, but often inflation has eaten up the cushion. In any case, the amount of insurance should be set based on just what property the association is obligated to insure. Setting the amount correctly can reduce the amount of insurance by 10 percent or more. Nothing makes you look more like Super-Insurance Man or Woman than showing clients how to reduce their insurance cost. [IA]
[LETTERS] continued from page 3
Insurance Department? New management does not necessarily mean a change the prevailing mind-set of people who have been with NYSIF for many years. Relationships with safety group management does not necessarily mean that the relationship with the Fund is for the betterment of the insurance producers or policyholders. I hope that Mr. Poppa's hope of a new era comes through, but in my 40years in this business I have had nothing by frustration with the NYSIF along with clients who were forced by the voluntary market to seek coverage with them. Jeffrey Gordon Wells J. Gordon Wells Intl. Brokerage New York, NY