Has Your Insurance Got You Covered?

Does your insurance company play fair and square with you?

Not always, asserts attorney Tara Snow, a partner at Novitt, Sahr & Snow. And if you are not on the ball, you could lose significant coverage. 

Snow points to a Queens co-op she represents as an example. The building had a policy to protect the corporation against theft by an employee. When the managing agent was caught stealing, the board made a claim. The insurer denied coverage, however, asserting that coverage was only for employees – and the managing agent was not an employee.

“The crime policy doesn't define the term ‘employee,’” says Snow. “We said, ‘Why would the co-op buy this insurance then? The only employees covered would be the super and the porter. They aren't handling money, so we wouldn't have insured the building with a $150,000 crime policy to protect ourselves from them. The only person it was ever intended to cover was the agent.’" The insurer argued that the manager is a contractor and thus not covered. (The issue is unresolved, currently in litigation.)

Even if a board is fully covered, disputed claims might force them to turn to a public adjuster to get the settlement they deserve.

Attorney Deborah Koplovitz, a shareholder at Anderson Kill, points to other examples of boards letting their insurer take advantage of them. She encountered a situation in which residents were undertaking an alteration project, and the co-op board asked that the corporation be put on the contractor’s policy as an “additional insured.” The resident complied with the request, but the contractor added the corporation to the certificate of insurance – not to the policy. The managing agent then told the board that the corporation was covered.

Not so. “The insurance company is pulling a fast one,” Koplovitz asserts. “Basically, they're only too happy to add anyone onto a certificate of insurance, because at the top of that certificate, it says, ‘This is not proof of insurance.’ This is a meaningless document that doesn't cover you at all.” A certificate of insurance is an informational document, used to lay out the specifics of an insurance policy: the policy number, the amount, and who is actually covered.

“Usually,” Koplovitz continues, “in order to be added as an additional insured in such a situation, your lawyer would provide the co-op with an agreement to give the contractor saying, ‘I hereby agree that so and so is added as additional insured to my policy.’ That’s what’s usually required, but what you actually need to do to be added depends on what the policy says.”

The real difficulty in these situations, says attorney Arthur Weinstein, is that most managing agents do not properly review policies. One board member freely admitted to a different attorney, who requested anonymity, that its current counsel doesn't review any of the co-op’s contracts. The managing agent reviews them and does all the legal work.

“This is a nightmare,” says Weinstein. “Lots of buildings have been involved in litigation with their insurance companies over these denials of coverage, after everyone has assumed coverage was in place. The only answer is vigilance and periodic review of all insurance by your professionals. The insurance coverage is a minefield of potential problems.”