Many co-op and condo boards are becoming aware of the need for airtight liability insurance to protect them from the blizzard of personal-injury lawsuits generated by the state’s Scaffold Law. But a case now wending its way through the courts illustrates the equal importance of adequate insurance for the building itself.
In 2019, after a devastating fire at One Sunset Park, a 54-unit Brooklyn condominium, more than 75% of the unit-owners voted not to repair it, clearing the way for the building to be sold and for them to split the sale proceeds and any payouts from the condo’s insurance policies. When an architect determined that restoring the structure would cost $24 million, several unit-owners sued the board for failing to purchase sufficient insurance. The board is countering that its $8.2 million building policy met the demand in the bylaws that the building be insured for at least 80% of the cost of the original 1931 structure and that its insurance purchases were made in good faith and therefore are protected by the business judgment rule.
Vital lessons are already emerging for co-op and condo boards. “Most boards think only about the cost of insurance premiums,” says Theresa Racht, an attorney who is representing the Brooklyn condo board. “This is not the place to try to save money. The size of an insurance policy should be based on an expert appraisal.”
Ed Mackoul, president of the insurance brokerage Mackoul Risk Solutions, agrees: “Insurance carriers should re-evaluate coverage for buildings every year, and if they’re not, you should hire an appraisal company to inspect the building and advise the board how much insurance to buy.”
Most lawyers advise their board clients to keep meeting minutes short and sweet. Racht believes boards should have open discussions about insurance and record them in the minutes. “The minutes need to document what the discussion covered, including the actual amount of coverage, the premium and the recommendations of the broker,” she says. “The minutes should reflect that the board bought X amount of building insurance at such and such a premium, based on the broker’s or managing agent’s recommendations. Make sure copies of their spreadsheets or other documents are in the minutes. The goal is to show that things were done in a proper fashion.”
Mackoul adds that documenting such decisions is relatively easy, and he agrees that it’s the wise thing to do. “We submit our proposals in writing,” he says. “I would document the discussion, especially if the broker or insurance carrier or managing agent says you’re under-insured.”
That won’t necessarily protect a board from getting sued. But it will improve the chances of success if a devastating calamity like the Brooklyn fire lands a co-op or condo board in court.