Should CO-OP Owners Purchase Liability Insurance?
Many co-op owners have concerns regarding their personal exposure to liability lawsuits in the event that someone gets injured while renting their units. The exposure is real and lawsuits unfortunately can result in large financial losses. The property manager and co-op corporation do carry liability insurance for their protection however this may not be enough to protect the owner of the co-op and so it is strongly recommended that the owner carry insurance to protect their personal exposure.
Most co-op boards strongly recommend that all owners purchase personal liability insurance coverage for their co-op exposure. If you already have good insurance in place, then there is no need to read further.
Years ago insurance companies would often offer liability insurance as an extension of the liability coverage provided under the owner’s homeowner’s policy that insured their primary residence. This type of coverage extension is fine for a seasonal/vacation home but was not intended for a co-op that is rented out regularly on a short term basis. The truth is many co-ops are really being operated as a hotel/motel business, and the insurance companies never intended to provide coverage for that exposure as an extension to a homeowner’s policy. The cost for that type of extension is usually under $50. Many insurance companies have been canceling those type of extensions, once they discover the nature of the rental operations. Now with google maps they can zoom in and see the operations more clearly, although they have no obligation to do so. Not that there is anything wrong with the way these co-ops are run but it is certainly not a simple second home. It is wiser for the co-op owners to address this with their insurance carrier in advance rather than run the risk of coverage denial in the event that a serious claim should occur.
The best course of action is to be honest with your insurance carrier and make certain that they understand how the co-op is operated.
There are two issues that make it difficult for co-op owners to obtain insurance in the Montauk/Amagansett area. First the insurance companies are concerned about writing any property insurance in the coastal area. Secondly, they do not like the liability exposure involved with short term rental occupancy.
The co-op corporations usually insure the buildings so the primary concern of the co-op owners from a property standpoint is the value of their contents. Insurance can be purchased on the contents however many owners do not have very high content values and some decide to self-insure their contents and only purchase liability insurance as that is an exposure that would be very dangerous to self-insure.
An annual policy providing liability insurance for a typical co-op rented regularly in season would cost about $500 annually for a $1,000,000 limit. Other options for higher or lower limits are available.
If contents coverage is desired, an HO-6 Co-op owners policy can be purchased. Contents insurance that excludes coverage for wind and hail is available at a cost of about $450 for a $25,000 limit on contents and improvements and betterments. Contents coverage including windstorm and hail coverage may also be available depending on your location, however the cost will be higher and purchasing may not make sense from a financial standpoint. An estimate for adding wind and hail coverage is about an additional $500 to $800, if it is obtainable. Flood insurance would not be provided for the contents as that would require a separate policy from the Federal Flood Insurance program.
Below are some examples of situations that could result in a liability claim against you personally.
- A rental guest slips in your bathtub or on the floor of your unit. They may bring a lawsuit against you, the co-op corporation and the property manager.
- A guest falls from your deck or on one of the chairs that you bought for your deck.
- A guest slips in the pool or somewhere else on the property. Obviously, this would not be the unit owner’s fault, but because they were staying in your unit they may follow their lawyer’s advice and sue everyone. Hopefully you would be successfully removed from the lawsuit, but without insurance it would be necessary and expensive for you to hire a lawyer.
- A guest could get hurt by something you put in your unit, for example, a mirror, stove or couch. They may decide to only sue you as the owner. Without insurance this could become a serious problem.
If you would like a quotation for insurance on your co-op please contact me and I will do my best to answer any questions and provide quotations for you to consider. We are currently insuring most of our co-op clients through United States Liability Insurance Company (A Berkshire Hathaway Company). We can provide quotations promptly, usually the same day. We can include coverage for loss of rental income and loss assessments. Just call or email us using the contact information below.
Ken Sciara, J.D., CPCU · The KS Agency, LLC.
Office: 631-957-2080 · Cell: 646-641-6224 · Ken.firstname.lastname@example.org