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Lack of Insurance Causes Financial Burdens for Co-op and Shareholders

When there's a fire or flood in an apartment building, it can be a nightmare for boards and apartment dwellers when the fix reveals a lack of insurance for one of the parties. Even if all the parties have insurance there are often unexpected exclusions. So you need to make sure you have adequate coverage for everything so you don't get caught short.

DAMAGE DOWN BELOW.  We represented an Upper West Side co–op. where there had been a fire in one apartment and the apartment below suffered substantial water damage. The apartment where the fire occurred had insurance, but the one below did not. The proprietary lease provided that the co-op, which had insurance, was responsible for common element repairs, like the pipes in the walls, and for restoring certain elements of the apartment interior, like the walls and flooring, to their original condition in the event of casualty. That was not sufficient, however, to address all the damage in the water-damaged apartment, because the shareholder had done a substantial renovation. 

WHO PAYS WHAT.  The shareholder below sued both the co-op and the shareholder of the apartment where the fire occurred. The co-op’s insurance provider had to determine what was covered under the co-op’s policy, what the individual shareholders' responsibilities were, and what was not covered at all. In the end, the lack of insurance on the apartment that had suffered the water infiltration meant that the shareholder was responsible for the renovations or betterments, and they had significant out-of-pocket costs. 

GAPS IN COVERAGE.  A second case involved a building where a plumbing issue during a renovation caused flooding in the unit below. Again, the affected apartment did not have insurance, and while the contractor’s and co-op’s insurance covered some damages, significant issues like mold remediation were only partially reimbursed. The shareholder had to temporarily move out and incurred high living costs, which were not fully covered by any party’s insurance and the co-op had to step in and cover some costs. 

This situation prompted board discussions about amending the house rules or bylaws to mandate insurance for all shareholders, as losses led to financial burdens for the co-op. That’s more of a concern than ever, given how many co-ops are facing increased premiums due to frequent claims. Aside from carefully reviewing building policies to ensure it is adequately protected, including business interruption policies to provide maintenance fees when a shareholder has to move out during repairs and mold remediation, boards should communicate to residents the importance of homeowner insurance.

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