Every right-thinking homeowner knows that carrying the proper insurance is a vital part of owning a home. For most people, buying a home is the biggest financial investment they will ever make—especially in today’s high-priced market, and especially in New York City, home to some of the most expensive property in the world.

In condo and co-op buildings, there are two different types of insurance policies at play—building insurance, and homeowner’s insurance. It’s vital that owners and shareholders know what is covered by their building’s policy versus what they are individually responsible for.

Unfortunately, many homeowners “Don’t give insurance a second look,” says Barbara Strauss, executive vice president of York International Agency, Inc. in Yonkers. “That’s why you have to call a broker who understands the working of condos and co-ops.”

New Risks, New Challenges

And that understanding has changed—or rather, new risks and liabilities have emerged that have necessitated a deeper, more comprehensive understanding of coverage and policy on the part of both insurer and consumer, whether the “consumer” is an independent apartment owner or an entire building.

The events of 9/11 put some questions to the insurance industry that had never needed asking before—such as, what are the insurance ramifications of total building destruction? Whose insurer is responsible if everything is gone—both the building structure itself and the contents? After 9/11, some insurers began offering “terrorism policies,” while others backed out of the business of insuring whole buildings entirely.

“The market has definitely changed,” says Frank DeLucia, senior vice president of HUB International’s Northeast branch, based in Manhattan. “Years ago, you could just go out and buy insurance—it was simple. It’s not that way anymore. Nowadays, even though the market is softening a little [since the spikes of 2001] insurers are looking very closely at risks, and they’ll only bring down rates when it’s justified. This softer market is different from those in the past—and insurers are going about their work smarter this time.”

Building Insurance vs. Homeowner Insurance

Building insurance is paid for by the building and covers the structure of the building. For the most part, building insurance covers common areas, but just exactly what is covered can change from building to building. Homeowner’s insurance pays for property and the parts of the apartment that the building’s proprietary lease or bylaws says owners and shareholders are responsible for.

“In any homeowner’s policy, you’re responsible for your personal property, your furniture and your fixtures,” Strauss says. “But after that, you have to go back to these documents, and they will tell you where the lines are drawn.”

“What’s not covered by the building’s policy would then have to be picked up on a homeowner’s policy,” says Alex Seaman of HUB International Northeast in Woodbury, “which should be specifically written to identify either a renter, a co-op or a condo [owner]. And there are specific forms for each of those types of apartments.”

“The homeowner’s policy would pick up the personal liability and the personal property of the unit owner,” Seaman continues. “That property would include contents—such as clothing, electronics, rugs, any valuable items—and ‘improvements and betterments,’ which would mean any structural alterations to the unit by either the present or any prior owners.”

Arthur A. Schwartz of Manhattan’s Masters Coverage Corp. says policies today work on an all-risk basis rather than specifying fire or lightning (to use two common examples) as covered causes of damage. He also says a good policy will provide “loss of use” coverage, meaning that if an apartment becomes uninhabitable because of damage, the policy would cover hotel costs.

Homeowners may want to take out additional coverage for burglary of certain items. The policy will state an amount of money that covers burglary cost without stating what items are covered, say $5,000 or $10,000 based on the policy. “But if you have a $30,000 ring,” Schwartz says, you should add it on by endorsement, or what’s called a floater.”

Also, if people work from home for their own business, specific coverage is needed for any property owned by the business. “The insurance company isn’t going to pay for contents if ABC Corp. owns them, but John Doe owns the policy,” Schwartz says.

Who’s Responsible For This?

For the most part, insurance policies pay out based on what is damaged. If an owner’s property is destroyed by a fire or flood, his or her homeowner’s insurance would cover the damage. If the hallways or lobby suffer damage, the building’s policy would kick in.

But Seaman says fault can play a role if a fire in one apartment causes damage to another, or if there’s a problem with a building that results in damage to a unit.

“If there’s a fire, and there’s damage to personal property, someone’s clothing or something like that, the first course would be to report that claim to the homeowner’s insurance carrier,” Seaman says. “The insurance carriers for both the building and the individual building owner would then determine the responsibility for that loss. If the owner of Unit 2-A suffered a loss because the owner in 3-A caused a fire, the insurance company for 2-A might subrogate against the insurance company for 3-A because they were responsible for the fire.” Likewise if a fire was caused by a building’s faulty wiring, the homeowner’s carrier could subrogate against the building’s policy.

There are also common differences between condo and co-op coverage, as the two forms of ownership are different. According to Schwartz, in some cases with condos, the proprietary lease may say that original equipment in the unit belongs to the building, but once any improvements are made, the unit owner—and all future owners—become responsible.

“In a co-op,” says Schwartz, “the proprietary lease can vary, but generally speaking, your kitchen cabinets, refrigerator, appliances, your bathroom and the fixtures belong to the unit owner unless the proprietary says otherwise.”

More on Home Improvements

Once an improvement is made, the unit owner’s insurance bears responsibility for it. If a homeowner upgrades a kitchen, their policy would be responsible for all cabinets, sinks and other work.

In almost all cases, the building’s insurance company covers the original floors. If the floors are changed, from tile to wood, or from tile to a different tile, the unit owner’s policy takes over. But Schwartz says that not even this situation is cut-and-dry, and different insurance companies can take different points of view as to what constitutes an improvement.

“There is some interpretation there as to whether [the resident] has altered the floor to the point that it’s different from the original floor, hence making it their property,” says Schwartz, “or if it’s still the original wooden floor, does it become the building’s property at that point? That’s one area where we often run into a problem, depending on the different insurance companies’ viewpoint and interpretation.”

Annual Reviews

Both building and homeowner policies should be reviewed annually by your broker. Various factors can develop over a year that can influence what type of coverage is needed. A homeowner might renovate a room, or make a major purchase—even putting up wallpaper can result in a change of the policy.

“The homeowner has to look at the value of their personal property,” Strauss says. “And they have to think about any improvements they made, or any major purchases they made. Maybe they bought a piano, maybe they put new wallpaper up, maybe they put in a new kitchen.” According to the experts, all of that counts.

And like a homeowner, a building’s board needs to consider any major improvements that were made—improving the lobby or reception area, for example.

“Let’s say the building put in solid-gold railings they didn’t have before,” Strauss says, “they have to take that into consideration when insuring the building and giving it value. There are many [potential] extra coverages, and that’s why it’s important to have a broker look at this. There are some additional coverages you should have, like flood, earthquake, sewage backup, underground water, ordinance and law coverage.”

How to Get Properly Insured

There aren’t any laws requiring homeowners to have insurance. Mortgage lenders require insurance for what they’re mortgaging, but they may not necessarily require all the insurance that a homeowner needs on a practical level. That may be starting to change, however.

“It’s starting to become a requirement,” Strauss says. “Many buildings are making it part of the house rules, and others are making it a lease requirement.”

Since most homeowners aren’t born insurance experts—and even if they’re knowledgeable about certain types of coverage, co-op/condo insurance is its own realm of business—it’s important to work with a broker who is familiar with condo and co-op policies.

“Not every company has a homeowner’s policy specifically designed for a co-op,” Schwartz says. “Most have condo policies, because condos are more a national trend. In a co-op, there should be a specific homeowner’s form designed for a co-op. One company may have a specific policy for co-ops and condos that has certain coverages that other companies’ homeowners policies don’t.”

Another factor that a condo- or co-op-savvy company should be aware of is loss assessment. According to Schwartz, if damage is done to the building and the building’s insurance isn’t adequate, certain homeowner policies will “pay—up to certain limits—with any other assessment due to the policyholder.”

Once again, homeowners and building management should be aware of what the proprietary lease and bylaws state so that all parties are adequately covered. In the end, though, the tangle of policies, floaters, riders, liability, and what’s-covered-versus-what’s-not can be made much easier to comprehend with the help of an experienced insurance company representative who’s willing to take some time and illuminate it all for your building’s board members. It’s their job to protect shareholders’ investment, and one of their most powerful tools is a sound insurance policy. And, says DeLucia, “Just the way you wouldn’t go out and pick any lawyer or accountant, you should make sure you’re dealing with a really knowledgeable insurance broker today.”

Anthony Stoeckert is a freelance writer and a frequent contributor to The Cooperator.