Will your insurance policy prove to be a hero or a zero for your Association?
The answer to that question will depend on submitting the most accurate and up-to-date information about your property and operations to the insurance company prior to them offering a quote and issuing a policy.
Obviously, an insurance policy covering 100 units in a building is going to cost more than a policy covering only 50 units. Some carriers will not or cannot write a building over a certain number of units. For example, your building has 100 units, and you list 50 on the application. It is conceivable that the carrier may have declined to write the risk originally if they knew it had 100 units.
But there are a lot of different factors that go into how much a policy will cost and even whether an insurance company is willing or able to provide you with a policy. Electric updates are key because most carriers do not want a building that either has fuses or Federal Pacific Stablok circuit breakers. They feel it has a higher risk of fire. Most insurance companies ask either on an application or a supplemental application whether a building contains either, and if the question isn’t answered accurately and a fire results, it can be an issue.
Updates to plumbing and roofing also play a role in pricing, as do the Commercial Occupancies, if any. Certain occupancies are more of a hazard than others. Onsite dry cleaners, smoke shops, and bars are a few that would be considered riskier than, say, a doctor’s office or a nail salon. Many insurance companies are not willing to provide coverage for what they consider to be risky occupancies, so it is important to provide them with an accurate list.
The occupancy of the units is another major factor because it lets the insurance company know who is residing in the units. A building with a majority or all owner or shareholder-occupied units is considered a better risk than one with units that are rented out or sublet to others. This includes Airbnb-rented units. Depending on the governing documents, Airbnb and even renting/subletting may not be allowed. Not being forthcoming to the insurance company can be a problem at a later date.
This doesn’t just apply to the insurance for buildings, it applies to all types of insurance as well. For example, with a homeowners policy, if there is a trampoline on the premises or ownership of a dog of a certain breed, you should be forthcoming to include it on the application. These may both be reasons the insurance company declines to provide a quote, but it’s better to be upfront about that. Technically, an insurance company can cancel coverage within the first 60 days for any reason in the state of New York. Other states have similar guidelines. After the 60 days, they have to have certain reasons, like material misrepresentation, in order to cancel. But if an insurance company can prove that the facts were either hidden or omitted, they can go back and cancel the policy to inception, and return the premium to the insured, thus nullifying coverage.
We know of an insured to whom this is happening – they are in the midst of a claim, and the insurance company is trying to rescind coverage because they feel that the information on the signed application was inaccurate and they would not have insured the risk if the application was accurate at the time it was signed.
The all-important lesson here is to be as accurate as possible when providing any info to your broker to assist in the application process. Being diligent about making sure information is accurate, and any updates or improvements to the property will go a long way.