This past summer, a Brooklyn co-op owner spent an afternoon with the still-vigorous 80-year-old acting manager of his cooperative apartment corporation, mixing concrete and filling ragged cracks in the sidewalk outside 570 44th Street, also known as the Park Slope Association. The trigger for this event: a recommendation from the co-op’s insurance inspector to fix the problem before it deteriorated further and posed a serious trip hazard.
In a climate in which a lot of money is at stake, it makes a good deal of sense to put your ounce of prevention to work before you get hit with your pound of cure. And as insurance costs rise, the dance among boards who don’t want to spend money, insurance companies that don’t want to pay claims, and managing agents who sit somewhere in the middle, continues.
One thing all parties agree on is that paper drives the process, and if your board receives an advisory letter from your insurer, notifying you to correct a potential or actual hazard, that letter should not gather dust. There is room to negotiate on the terms of how you will comply with the letter – but there’s no wiggle room when it comes to putting your plan in place and notifying all parties about what you intend to do.
If and when the city issues a notice of violation against a co-op or condo, the condition must be cured – and then the notice of violation itself must be removed at the issuing agency. It’s clearly better for a vigilant board to correct problems before that happens. Managing agents report seeing a number of major reasons for advisory letters, including sidewalk repairs, emergency lighting systems, emergency signage, and sprinkler systems. These are obvious places for a board to start when reviewing ways to prevent loss.
“I think that insurance companies will find that the more inspections they do, the better their loss runs are going to be,” says attorney James Samson, a partner in Banger Klein Rocca & Blum, using a technical term for how much an insurer pays out to settle claims. “But I don’t think that an inspector is a substitute for an engineer. Every board should have an outside, independent engineer walk through their building every two or three years. They need to know what projects they need to tackle five years down the line, before they become emergencies.”
Samson, who helps co-op boards save on insurance costs, notes that as of September 2003, the city of New York shifted responsibility from municipal government to the owners of multiple dwellings when it came to slip-and-fall cases on the sidewalks fronting their buildings. The city council exempted single-family homeowners, but co-ops and condos are facing new liability.
Has it affected insurance rates, or just caused underwriters to be more cautious with the coverage they write and how carefully they inspect?
Steven Principe, principal of the Principe Agency (which insures 90 buildings, mostly through the Greater New York Insurance Company), believes the huge post-September 11, 2001 premium increases of as much as a third to a half are over with. But he adds that insurance companies are still looking for increases of “between 10 and 12 percent this year.”
Principe doesn’t feel that the new sidewalk liability, in itself, is responsible for the higher premiums. “Companies may be a little stricter on what they write [as a result of the sidewalk law],” he says. “They may be tougher when their inspectors come out, stricter on the underwriting, but not on the rates.” He reports that the number of advisories sent out to boards is on the rise.
Broker Barbara Strauss, executive vice president of York International, which writes policies for over 200 buildings, agrees that companies are getting more involved in loss recommendations. She says the main reasons for advisory letters include cracks in sidewalks, uncharged fire extinguishers, lack of handrails, and lack of emergency lighting. She also says that companies are paying close attention to whether or not a co-op or condo uses licensed contractors on major jobs with the proper certificates of insurance.
Michael Spain, principal of the Spain Agency and a broker who handles some 200 buildings in the city, also agrees that insurance companies have been tougher on inspections. He says they have written more advisories, which are also known as recommendations on loss control, or “loss recs,” since 9/11.
Sandy Toscani, an executive at the agency, adds that some insurers are moving from traditional areas of concern like sidewalks, roofs, fire safety, and emergency lighting into other areas like worker safety. She says that one firm, Paramount, has asked buildings to make sure that workers have safe ladders to cut down on worker’s comp claims.
Observes Spain: “Boards should look for insurance carriers who make reasonable requests for loss control. You’re hoping, as a broker, that when you explain these letters to the board, that they make sense. You’re in an awkward position with a recommendation that could be costly but that you can’t really rationalize.” He cites as an example a sidewalk where the board will want “a little bit of patching,” but the insurance company will want each of the 26 sidewalk squares to be ripped up and re-poured. Toscani says another example of an unreasonable loss recommendation would be a requirement that all electrical fuses be removed at one time and replaced with circuit breakers.
“Either they shouldn’t insure the building, or they should insure it and work with the building to upgrade [potential problem areas] in a reasonable time frame. Take care of priorities one and two this year, and three and four next year. If there’s a roof terrace, and the insurance company wants some additional fencing added so some kid can’t slip over the side, that’s reasonable,” Spain says. “Maybe you have a compactor room and it’s not orderly, or you need a fire suppression system. That’s reasonable.” He adds that, “from a broker’s point of view, we think those recommendations are good, because if the broker and the managing agent come to the board, and say that the loss control recommendation [calls] this a fire danger, the board has to deal with it in a very quick way.” If there’s something that looks like a liability issue, the building has to act. It doesn’t want to be in a position where it didn’t address a critical recommendation.
To resolve a dispute between the board and its insurer, Spain recently visited a client building a West Side co-op in the 70s, to personally inspect the roof. “I met the managing agent and a [contractor] on the roof. I was ready to go to the insurance company and tell them they were being unreasonable about requiring a replacement, but as soon as I got up there I could see that the roof was a mess. It had been patched 15 times. I could see that it had to be replaced.”
Managing agent Ellen Kornfeld, vice president of the Lovett Company, also takes a hands-on approach, a hallmark of managing agents who are doing their jobs. She recounts a recent trip to 51 Fifth Avenue: “I noted that we had broken flags on the side of the building, and I called the vendor and got a price to replace them. If you’re waiting for the insurance company, and you’re sitting on it, it’s a problem.”
Donald H. Levy, vice president and an account executive with the management firm of Brown, Harris, Stevens, is frustrated with high prices for insurance, saying that “the only thing that saves the condos and co-ops is that there’s a lot of competition among the brokers.” He faults insurers for “making it virtually impossible to get competitive quotes – or any quotes – until just before a policy is set to expire, leaving you with no maneuvering room.”
Indeed, brokers confirm that there are only five or six insurance companies still willing to write policies for the New York urban market. They include Greater New York, Fireman’s Fund of Washington, Gulf, Alea, and New Hampshire. It’s a tight market where lack of competition, some managing agents say, is painting them into a corner when they are expected to deliver value for their boards.
“Insurance companies are really good about not paying claims whenever they can,” Samson notes, “and there’s a whole series of trip wires you have to avoid. The first one is: if they send you a letter, don’t ignore it. Do the work. Have the work certified by an expert and send a certified letter, return receipt requested, to the insurance company telling them that you have done the work. If you contest the letter, tell them; don’t let it sit there. If you can’t get it taken care of in the time frame they want, you can get them to agree that it will take longer – don’t leave yourself open. And when there is an accident – even the rumor that there is an accident – notify the insurance carrier immediately.”
Samson gives a recent example from his own practice: At a closing, the elderly seller of a cooperative apartment balked at signing an affidavit certifying that there had been no accidents on the premises. After discussion, she admitted that, several weeks before, her husband had slipped and fallen in the building’s basement, hitting his head. A board member knew, but the insurance company had never been told. A month after the sale of the unit went through, the former owner sued the co-op. But the insurance company refused to cover any of the co-op’s bills in the case, citing a lack of prompt notice of the injury and potential lawsuit.
“The biggest mistake,” Samson says, “is for a managing agent to decide unilaterally that he’s not going to tell the insurance company about an accident in the misguided belief that this somehow avoids premiums.” The cost of a serious personal injury suit is generally many times the cost of the premiums.
Once you file a claim, however, Samson warns, get ready for any warm feelings you may have had about your insurance company to dissipate. “At the point when you put in a claim, they are your adversary,” he says. “Then you get what’s called a ‘defense letter,’ in which the company disclaims responsibility. You have to read it with understanding, or get someone who understands it and can read it. And you may perceive that there’s a conflict between the interests of the insurer – to save money – and the interests of the co-op. You may want your own counsel to represent the building.”
He adds that boards should determine which companies have reputations for not paying claims and avoid them. That may not be so easy, he says, with the shrinking pool of insurance companies in the New York area. Samson also warns that some brokers may lock co-ops and condos into higher rates than necessary by soliciting quotes from every insurer, thus preventing a competing broker from finding other deals. He also says some managing agents may be splitting commissions with brokers, further driving up the ultimate cost of insurance for condos and co-ops.
Although rising insurance costs will probably not be as steep as they have been in the recent past, Samson feels it is still “time to start worrying about increases in premiums. It’s time to take a look at what you can do to make your building less vulnerable. You may want to increase your deductibles.”