A condo or co-op development is a community, but it's also a business. And like anyone else who runs a business, an association or board needs to protect itself with the right insurance. If someone slips in the community room and gets injured, he or she is as likely to seek a settlement, just as they would if they fell down in a supermarket. And just like individual homeowners, some associations do a better job of insuring themselves against those claims than others. Insurance is a tricky issue that can confuse even the most seasoned, conscientious board—even more so when the many types of specialty coverage are added to the more familiar concepts of umbrella and liability policies.
A Few Basics
"The association has bylaws which set forth the kinds of insurance that the community requires," says W. Gerould Clark III of Acordia in Morristown. "The board then hires a broker or insurance professional who goes out and finds those coverages. Those coverages are in the insurance cost of the budget for the association, and the individual members approve that budget. The ultimate payers are the individual unit owners, but the actual checks are written by the association."
Loosely defined as anything not covered in mainstream insurance offerings, specialty insurance encompasses a vast array of coverage options. As the insurance business has evolved over the years, it seems as though nearly every contingency has some sort of protection to mitigate it, from earthquakes to flooded basements.
"Co-ops and condos are like everybody," says Michael Zeldes, senior vice president of HUB International Northeast, an insurer with offices in both New Jersey and New York. "I've seen condos and co-ops that have all of the coverage they should have, and I've seen some that think they have all of it, but maybe in the fine print don't have what they think they have."
For co-ops and condos, there are two absolute must-haves in terms of insurance: property insurance and liability coverage. Property insurance covers the building itself in the event of fire or other destructive incidents. It can cover things such as the cost of replacing the building or loss of income from destroyed units, for example. Liability insurance covers the co-op or condo in the event that the building is sued for a trip or fall or other accident on site. That basic coverage will keep the building insured up to approximately $1 million.