Published on: November 17, 2017
With all of this talk in the news about healthcare and insurance, I am reminded that prevention is always better than the cure. As a condominium litigator, I am often seeking a “cure” for our clients of something that could have been prevented. Condominium insurance can be just as tricky and controversial as health insurance.
Insurance is typically one of the highest budgeted item for condominium associations. Because of this, condominium boards are often looking for a way to cut that cost in order to keep monthly expenses down. Unlike the current healthcare proposal, condominium board’s cannot eliminate insurance entirely, but they can do damage. Condominium boards need to be careful what they cut you cut or don’t have in the first place.
I have been involved in two lawsuits where substantial portions of the condominium have burned down. In both cases the condominium had insurance to reconstruct the building in a stated dollar amount. In both cases, the condominiums had a significant shortfall because neither condominium had adequate demolition coverage or ordinance of law coverage. In one of the two cases, the board was significantly underinsured because an agent had typed the wrong square footage into the insurance valuation program, which in turn spit out the wrong replacement cost value. Making matters worse, that agent happened to be a board member, to whom the issue of procuring adequate insurance had been delegated.
While the ensuing litigation by those two condominium associations was painful and expensive for those two boards, all those associated with it learned a great deal. What I learned is knowledge of insurance is worth a pound of litigation.
You would think that the cost to demolish a burned down and water logged (from the fire department) building would be included in the cost of rebuilding a condominium. No so. Demolition coverage is an extra policy endorsement. It can be very expensive to demolish a building or a portion thereof. Recently a brand new 83 unit condominium complex in Dorchester was gutted by fire and smoke and then doused with water and foam from the fire department. The cost to demolish that building is astronomical. Demolition does not just involve tearing down the building and removal of materials but also things like protective fencing and police details. It costs money to throw stuff away now, especially if its contaminated, which is often the case after a fire.
In both of my cases, the fire and subsequent rebuild implicated certain code upgrades when the condominium decided to reconstruct their building. In one case the Condominium was required to install elevators, which did not previously exist. The other involved the installation of a sprinkler system. Both very large expenses. These expenses are also not covered by the property and casualty coverage, but are also a separate endorsement known as law and ordinance coverage, which pay for upgrades required by subsequent enactments or law or zoning and building codes.
My takeaway from this litigation is that both of these condominiums could have been served by my Partner and noted condominium insurance guru Stephen Marcus. These extra coverages are not that expensive but the average person does not know about them, unless they learn about them somehow like I did. I tell condominium boards and homeowners all the time, for the most part they don’t want to deal with me, because usually when they are dealing with me, it involves a lawsuit.
Much of my education in condominium law and practice comes from lawsuits, after the fact. Stephen Marcus on the other hand has spent 40 plus years learning, living and building much of this stuff from the ground up. I like to call him the “insurance whisperer”. Stephen is a firm believer that every condominium’s current insurance policies and coverages should be reviewed annually. In fact, many condominium documents require that the property be appraised annually to ensure the property and casualty insurance is sufficient, however very few condominiums actually do this.
The obvious items to check for are: (1) is the policy adequate to pay for a rebuild in the event of a total loss, (2) does the condominium have demolition coverage, (3) does the condominium have ordinance of law coverage. Sometimes you can eyeball and just tell its not enough or not there. Other times its more subtle. Less obvious items are fidelity coverage, directors and officer’s coverage and flood insurance. Taking those in turn regarding the policy amounts, Stephen will review whether your policy is guaranteed replacement cost or a set figure and whether you have the additional coverages (demolition and ordinance of law) discussed above and whether your coverages actually comport with the insurance provisions of your condominium documents.
The condominium documents are an important part of this process, as most condominium documents require the procurement of certain minimum coverages and coverage of certain portions of the property. Most of these documents are outdated and do not recognize some of the special policy endorsements outlined above. Many documents do not require unit owners to carry their own H-06 policies. Some documents might not even require 100% or guaranteed replacement cost. Steve would even tell you that statutory minimums (for example fidelity policies by statute only require a limit of one fourth of the total budget, G.L. c. 183A § 10(h), yet sometimes board members and managers are dealing with and have access to 10 times that amount of money (if for example there is a loan or legal settlement or high reserves). The insurance should be comport with the risk not just meet an arbitrary statutory minimum.
Now you might ask who cares what the documents say? I am just going to go to my insurance agent and get what I need. Well first of all, insurance agents often look at your condominium documents to tell you what you need. Secondly, board members often follow the same path. You can have the smartest and best board that goes above and beyond and makes sure that the condominium is adequately insured over and above what is provided in the documents. But the next board comes along and is looking to lower condominium fees (remember how this article started), so they look to save on insurance premiums and eliminate coverages. Condominium boards are like Presidents some are good, some are bad and regardless they all have different agendas, hence the checks and balances in our government. So how do condominium’s make sure they are protected from the changing tides of political whims going forward? An ounce of prevention. That is where Stephen Marcus comes in.
Send your insurance declaration page to Stephen Marcus and have him review it and compare it with your condominium documents. Stephen understands insurance coverages and beyond. He has spent hours with insurance professionals discussing things like bare walls coverage and obscure exclusions contained in directors and officer’s policies, he knows the insurance industry, how they view certain condominium claims and how certain insurance companies treat certain claims. Its sensible preventative maintenance.
Stephen will review and compare your coverages with the insurance provisions in your condominium documents. He might recommend additional coverages. He might have your consult with an agent regarding dollar amounts of coverages and/or even shop policies to compare exclusions if your community is at a higher risk for a particular kind of loss. He might recommend changes in your documents to protect the community going forward. An ounce of Steve’s years of experience in the condominium arena is far better than the pound of cure, which like most “cures” is uncertain and costly especially when it takes the form of litigation to recover insurance shortfalls. While I love being in the courtroom and advocating for condominium boards, I know that spending a few hundred dollars on an annual insurance checkup is much better than spending thousands of dollars on insurance shortfall recovery litigation. A checkup is better than surgery any day of the week. Come on in and see Steve Marcus for your annual insurance checkup today.
If you want MEEB to review your insurance declaration page and insurance provisions of your condominium documents please contact Stephen M. Marcus at firstname.lastname@example.org.