HOMEOWNERS INSURANCE
The House Rules require all shareholders to acquire Home
Owners Insurance. The House Rules state:
"All
Lessees must obtain comprehensive Home Owners Insurance Liability
Coverage for any and all apartments or shares they own. A copy
of the certificate of Home owners Insurance Liability must be
submitted to the Board of the Lessor or designated Managing agent."
WHY YOU NEED TO BE INSURED AND WHAT YOU NEED TO KNOW
(The following article by
Robert E. Mackoul,
founder and President of Mackoul and Associates, provides some
basic information on theHome Owners Insurance. Please contact your
insurance agent for advice and complete information on the available
insurance.)
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.
These beliefs are not only wrong,
but they can also be dangerous. Building insurance 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 uninhabitable.
The issue 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,
- Contents and Personal Effects,
- Loss of Use coverage for extra
expenses that arise from being temporarily unable to occupy the
unit following a claim,
- Personal Liability to protect against
lawsuits from other parties or insurance companies, and
- Assessment
Coverage.
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.
PERSONAL PROPERTY
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. 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,
you should typically estimate 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.
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 month.
LIABILITY COVERAGE
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
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 INSURED
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. 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 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. An annual monitoring process should also be established to
ensure that everyone is covered.
Extracted from:
CNYC
250 West 57th Street, Suite 730
New York, NY 10107-0730
Tel: (212) 496-7400
Fax: (212) 580-7801
E-mail: info@cnyc.coop
Read the original article here.
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