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1. Do Business With Knowledgeable Professionals Who Specialize In Cooperatives & Condominiums.

2.   Industry Associations, Educational Conferences & Media

3. Directors Officers Liability

4. Homeowners Insurance and what risks Shareholders/Unitowners Face If They Are Not Insured Properly.

5. Pay Attention To Insurance Company Loss Control Recommendations On Life Safety & Security Issues

6. Update The Building Electric, Plumbing & Central Air Conditioning

7.   Transfer Risk To Commercial Occupancies

8.   Contractors

9.  Don’t Shop Too Much or Too Little

10.  Indemnification Clause For All Board Of Directors

“IT’S NOT NATURAL TO LIVE IN A COOPERATIVE”…. Or Why Every Corporation Should Implement A Homeowners Insurance Program

WHY SHOULD A COOPERATIVE HAVE A HOMEOWNERS PROGRAM?

• When claims occur, shareholders, Board of Directors and Managing Agents never really understand what is the corporation’s responsibility and what is the shareholder’s responsibility.
• Shareholders do not realize that within their unit they are responsible for all improvements and alterations to kitchen, bathroom cabinets, built-in wall units, wall to wall carpeting, wall paper, permanent fixtures, tile and new wood flooring.  Even the varnish on the floors and the paint on the walls is the shareholder’s responsibility.  No wonder there are often problems and misunderstandings.
• When a shareholder suffers a loss to his unit or personal property that is not insured, they most often seek reimbursement from the corporation.  The Board is put in a precarious position.
• When an uninsured shareholder is sued for damages by another shareholder or their insurance company, the corporation and Board will be dragged into the suit by the uninsured shareholder. It happens all the time.
• Banks & Mortgage companies don’t require the shareholder to provide proof of insurance as a prerequisite for a mortgage.  At the closing the shareholder must provide a certificate of insurance illustrating coverage for the corporations property and liability coverages. There is no insurance requirement imposed on the shareholder to maintain coverage.
• Many shareholders assume that since a portion of their maintenance charges are for “insurance” that the corporation protects their interests.  This is not true.
• Many shareholders who do maintain coverage have a Renters Insurance policy which does not provide coverage for improvements and alterations to the unit.
• Those shareholders who do have insurance coverage are often underinsured for the improvements and alterations in their units whether made by themselves or by previous owners.
• Boards are constantly confronted with charity decisions when there is inadequate coverage.

WHAT ARE THE RISKS THAT SHAREHOLDERS FACE IN THE EVENT OF A CLAIM?

• The shareholder is faced with the risk of not being able to restore their unit.
• The shareholder is faced with the risk of not being able to replace their personal property.
• The shareholder is faced with the risk of not being able to house their family during restoration.
• The shareholder is faced with the risk of being sued by the Corporation’s insurance company for damages caused by the shareholder or their family members.
• The shareholder is faced with the risk of being sued by another shareholders or their insurance company’s for damages to their units, personal property, or their physical or mental injuries and suffering.

Coverage Reference Guide for Shareholders

Personal Property

Loss of Use/Additional Living Expenses

Comprehensive Personal Liability

Loss Assessment

Guaranteed Replacement Cost

Off-Premises Theft

Scheduled Jewelry, Furs & Fine Arts/Antiques

• $ 25,000- Additions & Alterations – covering permanent additions made to your apartment either by you or by the prior owner(s),including cabinets, fixtures, wallpaper, paint, lighting, carpeting,flooring, etc.
• $ 25,000- Personal Property – covering your personal property andcontents of your apartment, which would include furniture, clothing, carpeting, etc.
• $300,000- Personal Liability – Provides coverage for the shareholder andtheir family for claims/lawsuits by others for injuries or property damage due to the negligence of the shareholder or  their family members living within the apartment.
• $10,000- Loss Assessment – Provides coverage for any covered loss assessment made against the shareholder because of a loss which exceeds the corporation’s insurance coverage.

New York City Sidewalk Liability

• Each cooperative, condominium, apartment building insurance program provides $1,000,000 of comprehensive general liability insurance covering trips and falls and provides for extensions of coverage for the Board and management firm.  Lawsuits for sidewalk liability always have named the building and the City of New York in the past, so now there isn’t a City of New York to sue.
• Each cooperative, condominium apartment building insurance program provides at least an additional $50,000,000 of umbrella liability that provides coverage for the building, the Board and the management firm for lawsuits that exceed the initial $1,000,000 in coverage. So in effect, each building, Board and management firm has $51,000,000 of coverage per occurrence for trips, falls & sidewalk liability.

• The City has in the past three years paid almost $200,000,000 in judgments, and projects it will save approximately $50,000,000 per year. So that burden will now fall entirely to the insurers.
• Buildings will probably have to be much more diligent in sidewalk repair and replacement or face cancellation of their insurance coverage or non-renewal. Insurers will more than likely inspect risks more frequently.
• Premium increases will be likely to cover the additional exposure.
• Many national and large regional insurers have with drawn from insuring cooperatives, condominiums and apartment buildings in New York City in the past few years. More could follow.

Real Estate Management Best Practices

News Flash: New York Labor Law poses significant exposures to law suits for property owners! This exposure arises from the hiring of contractors to work on your property without protective wording in your work orders/ contracts.

A. If you hire contractors or repair persons on your property you must:

Verify that the contractor has workers compensation coverage and a general liability policy with limits equal to $500,000 or more.

Obtain written confirmation that your contractor has named you as an additional insured on his or her general liability policy before the contractor begins work.

Utilize written contracts or work orders when contracting for any work or repairs to your property including “hold harmless” and “indemnity” agreements in your favor. This requires the contractor to be responsible and pay for any accidents or losses resulting from the contractor’s negligence. If you fail to include hold harmless and indemnity agreements you may be liable for injuries sustained by anyone injured on your property as a result of the actions of the contractor, even if you did nothing wrong. Your agent or attorney can provide you with wording that can protect you.

Hire only licensed, qualified and competent contractors. Make sure the people hired hold the required licenses to do the work. Ask for and follow-up on the contractor’s references.

B. If you have subleasee’s

Require each to maintain liability coverage (tenant’s homeowners or commercial general liability insurance) so your tenant has the means to reimburse you for any damage caused by him or her.

Have your attorney include and indemnity agreement in the lease with your tenant which is consistent with the laws of your state. To the extent permitted by law, the indemnity agreement would shift the responsibility for liability claims to your tenant. In some states, these agreements are only enforceable if the agreement limits your recovery to the extent of your tenant’s valid insurance coverage. For this reason, it is important to obtain a certificate of insurance from your tenant(s) on a regular basis, e.g. annually.

Include a “waiver of subrogation” clause in your rental agreements so if your tenant suffers a loss, neither the tenant nor his or her insurer has a right of subrogation against you.

Require all prospective subleasee’s to complete an application including references and prior places of residence. Try to determine whether the tenant has moved frequently and if so, why, and check the tenant’s references.

C. Loss Control your Building

Look for hazards that might result in slip and fall liability. Many of these hazards can be easily repaired, e.g. repairing torn carpeting  and replacing interior & exterior light bulbs, repairing or replacing broken or worn stairs and handrails, repairing cracked or uneven walking surfaces, parking areas and entrances.

Make adequate arrangements for snow and ice removal with qualified contractor (refer to item A of this document). Inspect for ice build up on sidewalks and parking areas. Consider keeping a log and record the date, time and place where you have cleared snow and treated surfaces.

Make sure your tenants properly dispose of boxes and other trash.

Look for and remedy any sign of excessive moisture or leaking water to avoid claims arising from exposure to mold.

o All residential units must have at minimum battery operated smoke alarms in each unit.

o Hard-wired smoke alarms should be installed in all common hallways.

o UL approved carbon monoxide detectors should be installed in all habitational property (Local Law 7/2004 applies in New York City).

o Emergency lighting should be installed in all common hallways.

o Exit signs (self-illuminated) should be located above all passages/ doorways leading to the outside.

o Emergency exit diagrams should be posted in all public buildings on each floor.

o Portable fire extinguishers should be serviced annually.

o Electrical systems should be inspected and serviced by a licensed electrician.

o Avoid overloading electrical circuits (particularly in older structures).

o Discourage the use of electric or kerosene space heaters.

o If the building is sprinklered, have it inspected/serviced at least every other year.

Contact Edward J. Mackoul at 866-MACKOUL or ejmackoul@mackoul.com