Find Ways To Keep Your Condo Building’s Insurance Costs Down

Robert Braverman, Principal and Managing Partner, Braverman Greenspun

Condo conflicts. When a leak occurs from either a pipe burst or from a facade, most condominium bylaws have conflicting provisions. On the one hand, they provide that unit-owners are responsible for maintaining and repairing their apartments, but they also have an insurance provision, which requires the condominium association to insure the entire building for casualty loss, which includes the units.

Small losses, big trouble. Most condo boards, out of an abundance of caution, file loss claims despite the bylaw conflict. If a building has multiple small losses, say $10,000 to $25,000, what happens is at the end of the policy period, the insurance company turns around and says: “You’re not a good risk. We’ve had to pay four or five $20,000 claims. As a result, if we renew at all, it’s going to be with an exponentially higher premium and an exponentially higher deductible.” And that puts a building in a really, really bad position — particularly over the last couple of years, when we’ve seen insurance rates spiraling out of control.

The bylaws solution. There are a number of solutions. Condo boards can amend their bylaws to say the obligation to insure the contents of apartments is solely on the unit-owner. That’s not always an easy amendment to accomplish for two reasons. One, you need a supermajority of unit-owners, usually two-thirds. And No. 2, many unit-owners don’t want that shift in responsibility. They’re happy to keep the burden on the condominium association to insure everything except for improvements to their units.

The self-insurance solution. If you can’t amend the bylaws, the only answer is to self-insure, in effect. You create a threshold where you don’t report a small loss to your insurance company. If the threshold is, say, $15,000, the association pays up to that much to make the repairs to the building. That way, there’s no loss history, and you avoid the consequences with the insurance carrier down the road.