Fire fight. After a devastating fire in 2019, more than three-quarters of the 54 unit-owners in a Sunset Park condominium voted not to restore the building, which cleared the way for all unit-owners to split the proceeds of a building sale and any payouts from the condo’s insurance policies. Since then a group of unit-owners has sued the condo board for breach of contract, claiming its $8.2 million in property insurance was inadequate.
Backup policy. That legal mess points out the importance of a little-understood type of insurance policy available to co-op shareholders and condo unit-owners. Known as loss assessment coverage, this part of a homeowner’s policy usually protects residents if the building’s master policy fails to cover all costs for liability or for damage to the building’s exterior or common areas — and the board is forced to assess residents to cover the difference. A loss assessment policy will pay the resident’s share of that assessment, up to the limit set in the policy. That limit, while usually small, can range up to $100,000.
“It’s misunderstood,” says Jason Schiciano, co-president at the brokerage Levitt-Fuirst Insurance. “Any time a board levies an assessment, there’s an assumption that it will be covered by the loss assessment policy. But there’s a cap to the coverage, and it’s triggered only if the homeowner’s policy covers the cause of the loss that’s the basis for the assessment. For example, if a sewage backup is excluded from the homeowner’s policy, any assessment to pay for repairs will not be covered by the loss assessment policy.”
Another wrinkle. Some boards try to keep maintenance low by buying insurance policies with high deductibles and low premiums, then assessing residents to cover the deductible in the event of a claim. But Schiciano points out that one carrier’s policy with a $100,000 limit on loss assessment coverage also has a $5,000 limit on payouts for an assessment that covers an association’s insurance deductible.
Purchasing power. Should boards urge residents to buy such coverage? “It’s not something for boards to advise,” says Alan Lyons, a partner at the law firm Herrick Feinstein and the chair of its insurance practice. “It’s something residents should discuss with their broker. Many unit-owners and shareholders may not be aware such coverage exists. The coverage limits are usually low, but it can be useful.”