Bill Morris in Board Operations on January 16, 2014
"We were sitting on a $1 million line of credit and we had a $500,000 reserve fund because we had refinanced the mortgage in 2008, before the fire," says Chris Vescio, co-op board president of The Broadlawn during that time. "That meant we had the wherewithal to move forward on the path we wanted to move on — hiring our own contractor, and exceeding what the insurance company wanted to pay for — without the insurance company's money."
The board's attorney, James Glatthaar, of Bleakley Platt, says that allowed them to play hardball with the insurance company. "It gave the shareholders a better rebuilt apartment than they would have gotten if we didn't have those resources," he adds. "That built up some good will with the shareholders and gained their support in our fight with the insurance company." At this point, the board, after disagreeing with the adjuster's advice, fired the insurance agent and started shopping for a replacement.
Up to Code
The co-op's architect drew up plans that brought the damaged apartments into compliance with contemporary building codes. The rebuilt apartments have state-of-the-art electrical wiring, hot and cold water lines and waste and gas lines.
One sticking point, which illustrates the fraught nature of the negotiations, was the walls. The board wanted the insurance company to replace them with the original lath-and-plaster. Too expensive, the company argued, offering to pay for Sheetrock walls covered with plaster-like spackle compound.
"The biggest issue was getting materials that were satisfactory to the shareholders," says Stillman. "The building was built one way, and the insurance company wanted to rebuild it another way. It was an everyday battle for months, the hardest thing I've ever had to do. It consumed me for several hours every day for a year."
Eventually, the board settled on double-thick Sheetrock walls covered with the spackling compound previously recommended by the reconstruction contractor, which turned out to be even more soundproof than the original walls. The affected shareholders agreed to accept this.
After all the wrangling and delays, residents finally moved back into their apartments in the summer of 2010. The shareholders' claims against the insurers of the contractor and subcontractor were settled that September and payments were made the following month. In the end, GNY paid $1.8 million, while the co-op kicked in about $200,000. Settlement of the co-op's claims did not occur until December, and it was paid, at long last, in March 2011.
Lessons of the Blaze
"You have to have a healthy degree of suspicion over all the companies that work with your insurance company," reflects Glatthaar. "I found that they all have relationships and they're not going to risk those relationships for one co-op." He called that web of relations "incestuous," adding, "We were optimistic as we went in, but we became pugilistic."
A spokesman for GNY declined to comment. But insurance broker Barbara Strauss, executive vice president of York International Agency, has had extensive dealings with GNY and gives the insurer high marks. "No insurance company is going to pay a loss that may be deemed unreasonable," she notes. "GNY has contractors who can do the work and provide more favorable pricing when adjusting a loss. It's very common."
In the end, Strauss advises, boards can control their destiny by choosing an insurance company wisely. "You get what you pay for," she says. "If you're going to cut corners to save money, you may get an inferior product. I advise boards to make sure their broker analyzes coverage differences and knows their carriers. There are some insurance companies that don't pay as well as others."
Another lesson is to expect the unexpected — and get ready to pay for it. "This is a hard thing for co-op and condo board members to understand," says Glatthaar. "Sometimes you're caught in a situation where you didn't do anything wrong and you think the co-op or condo shouldn't be out of pocket. But you will be out of pocket because your insurance company simply will not pay for certain things — the managing agent's time, legal fees, architect's costs."
And the final lesson: don't kid yourself. If you think disaster can't happen to your building, you need to think again. Right now.
Co-op and condo board business broken down into bite-sized bits - 2 stories each week. Read now on all digital devices.
A free digital resource for co-op/condo board directors. Published twice a month. Read now on all digital devices.