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To mitigate rising insurance costs, co-op and condo boards can shift water damage coverage to homeowners by amending proprietary leases or bylaws. Communication is key.
AUTHORKen Jacobs, Partner, Smith Buss & Jacobs
Blunt talk. Insurers have had lots of losses and are trying to protect themselves by raising premiums and reducing coverage. Every co-op and condo is dealing with this, and one way to try to cap these premiums is to shift some of the coverage to homeowners.
Start with water damage. In a typical association policy, the co-op or condo is responsible for repairing casualty damage to units. So if there’s a windstorm or a rainstorm that causes a leak through a roof or a facade and it damages a unit, the board pays for the repair. The problem is that this could be a small $15,000 claim, but if the association makes four or five $15,000 claims to the insurance company, the loss run for the association looks terrible. So what is the carrier going to do when it comes time to renew the policy? It will exclude water damage from the scope of coverage or it will increase the premium by 30% or 40%.
Share the load. What boards can do is to get shareholders or unit-owners to approve an amendment to the proprietary lease or bylaws specifying that in the event of a casualty, the co-op or condo has to make repairs, except for those due to water damage. Shareholders and unit-owners should be required to carry homeowners insurance, and that individual policy would now be responsible for the cost of repairing water damage to the unit or to the personal property of the owner.
Do your homework. Boards have to stay informed about the insurance market changes and communicate them to owners. If you explain that insurance costs have gone up by 30% and that’s why you’re shifting some of the liability for repairs in the event of a casualty, I think the majority of people will understand.