Dear Co-Op Counselor,
Our Cooperative maintains its own insurance policy covering the buildings, exteriors and common areas. After some recent requests for replacements and repairs, and instances of units suffering damages, our Board of Directors is concerned with finding ways to trim costs in paying for damages that occur within the dwelling units, while ensuring that adequate insurance policies cover both the exterior buildings and common areas, but also everything within the units. Are there any ways that the Cooperative can save on having to go out of pocket to cover damages that would otherwise be covered in a traditional homeowner’s insurance policy?
Dear Concerned Board of Directors,
Unfortunately, the situation is not as straight forward as the classic scenario of someone purchasing a home and obtaining a homeowner’s policy, whether required by a mortgage or otherwise. However, there are certain policies available to members and residents of housing cooperatives, that can provide liability coverages within the unit interiors and on a member’s personal property. The resolution may seem to require a simple fix, such as the Board of Directors adopting a policy that requires all members obtain a certain level of insurance coverage on the interior of the units and their personal belongings and effects. Given, however, that the cooperative likely has a master insurance policy covering the cooperative property, the fix may require additional provisions, above a simple policy, providing for and spelling out certain rules, minimum policy limits, coordination of policies, and setting forth common situations that when damage does occur, determines whether the cooperative’s policy would be primary, or where the member’s insurance policy would be primary policy. Solutions to these scenarios are routinely found in condominium association bylaws, but if a cooperative were to adopt a similar insurance requirement, much can be learned or borrowed from the context of how these issues are addressed by condominium associations that require condo owners to maintain their own insurance policies covering liability within the “four walls” of the unit. Nevertheless, there are options available to the cooperative.
One such example of insurance policies available to cooperative members and residents are “HO-6” Policies. Although more common throughout condominium associations, HO6 insurance policies frequently extend coverage to housing cooperative units. While each insurance provider or underwriter may differ, including their eligibility requirements, processes and procedures, the basic principles are shared. An HO-6 insurance policy is a type of policy that typically covers both condominium and cooperative settings. These types of policies usually cover three main things: (i) personal property of the cooperative member (or condo owner); (ii) improvements within the unit; and (iii) liability coverage. Policies may also provide members with coverage to cover costs of additional living expenses that occur as a result of damage suffered to the unit, the flooring, coverings or carpet within the unit, and even the walls (i.e., drywall). When members obtain HO-6 policies, not only does it provide each member with assurances and coverage for their own belongings and interests within the unit, but may also save the cooperative from what would otherwise be considered damage falling outside of the cooperative’s master insurance policy. These policies help both the member and the cooperative from going into their own pocket, or reserve accounts, to cover costs of damages, repairs and restoration.
Before a cooperative considers adopting a policy requiring members to obtain insurance coverage within the dwelling unit, consideration must be given to factor both the cooperative’s current insurance policy, coverages and limits, and determining the extent that the cooperative would require (or encourage) its members to obtain. Members seeking to obtain an HO-6 policy will likely require information on the cooperative’s existing policy(ies). Nevertheless, a good Board of Directors should be concerned about protecting the Cooperative’s financial health, and insurance policies and coverages play an important role in the financial well-being of a cooperative.
Prior to rushing into policy revisions, we recommend that the cooperative’s Board of Directors first consult with the cooperative’s legal counsel to review and determine the adequacy of the cooperative’s existing insurance policies, and how best to structure any changes to the cooperative’s Bylaws or Policies. Adding certain insurance requirements may require the cooperative to determine further issues such as coordination of insurance policies, questions of which policy should be primary in certain scenarios, and the like.
Your Cooperative Counselor.