Co-op Apartment Damage: Who Should Carry Insurance, Who Pays for Repairs?

Matthew J. Leeds in Board Operations

Dec. 23, 2009 — Should a co-op board and its property manager require all shareholders to carry apartment insurance? While each building is its own separate situation, consider the experiences of the owners of a two-bedroom co-op apartment in Manhattan, who came home from a long weekend to slosh their way over a wet floor and find water dripping down the walls and through a hanging light. The place was wrecked: wallpaper and paintings ruined, floors warped, furniture wet and damaged, items in closets and dressers damp, and the threat of mold apparent. Even with the water shut off, they wouldn't have been able to stay in the apartment until it was fixed.

The upstairs neighbor, a building friend of many years, who had also just returned from a week away, quickly helped them discover that water was flowing down from the tank of a toilet in his own unit. Quickly turning off the water to the appliance and sending for the super, they saw that an inexpensive washer on the bottom of the tank assembly was split, allowing a flow that went down the porcelain and to the apartment below.

What followed for the tenant-shareholder and for the building was an education in how the insurance coverage of different parties interacts, and how common provisions of the proprietary lease come into play when there is a leak.

Technically, a Renter's Policy

In a co-op, the shareholder is a technically tenant and the apartment corporation a landlord under the proprietary lease, so a shareholder's insurance policy is essentially a renter's policy. That policy covers loss of the shareholder's personal property and installations (the paintings, furniture, wallpaper, etc.) and, depending on the circumstances, the cost of repairs that are the responsibility of the shareholder under the proprietary lease. (The policy also normally provides liability coverage.)

Presumably, this policy is also the first recourse for payment for a hotel or other alternative living arrangement. But in actuality, the policy will usually cover not all such expenses but only for what is required to be paid in addition to normal living costs (such as the monthly maintenance charges) as if nothing had happened. (As a matter of practice, some companies occasionally cover the full amount of living expenses, without deduction for what the shareholder would otherwise pay.)

The reason why this deduction for maintenance charges should not hurt the shareholder is that most forms of proprietary lease provide for an abatement of maintenance charges for however long the apartment corporation (the landlord) cannot provide a habitable apartment to the shareholder. (Note that the tenant-shareholder might have an argument outside the proprietary lease, in that the statutory warranty of habitability would offer these rights anyway.)

The apartment corporation's policy should cover the items that the building is obligated to replace, as well as any damage that might be caused by building-staff negligence.

Basic Building Standard

In this case, the proprietary lease provided, as many do, that in the event of damage the corporation would restore the walls only to the basic building "standard," presumably being the plain-vanilla walls and ceiling. Also, the building policy would reimburse the apartment corporation for the loss of maintenance charges while the apartment was uninhabitable.

Under the upstairs neighbor's policy, the shareholder, rather than the corporation, would be responsible to everybody for much of the damage, including the fixtures.

The insurers might have fought among themselves over the cost of cleanup and of replacement of items that were damaged. But in this story, the shareholder who suffered the loss only had to look to its own insurer and then let the insurers settle among themselves.

The lesson? The happy fact is that the upstairs neighbors had their own insurance policy. If they hadn't, there could have been a world of woe — and lawsuits. Worse, there could have been the problem of recovery against the individual neighbors and the additional time that that might take.

Out of all this comes the question of whether apartment corporations should require that shareholders carry insurance. Few proprietary leases actually do, though sometimes apartment corporations require proof of insurance at the closing.

Some observers might feel it is paternalistic to burden a shareholder with the requirement to carry insurance, as it is an expense, and the building and other owners would theoretically always have recourse against the owners personally — and, ultimately, some equity in the asset of the apartment. If a board chooses to institute this requirement, it could do this by a house rule, or even more powerfully, by amendment of the proprietary lease.


Matthew J. Leeds is an attorney at Ganfer & Shore and an Adjunct Professor of Law at Fordham Law School.

Adapted from Habitat November 2009. For the complete article and more, join our Archive >>


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