Insuring Amenities Don't Make Luxury a Liability

Like beauty, what constitutes an 'amenity'—particularly a 'luxury' amenity—may well be in the eye of the beholder. Young families may want indoor and outdoor play equipment, while professionals may appreciate a well-appointed gym, and seniors might gravitate towards card rooms and social halls. All of those and more are examples of what may be considered an amenity, and whether built-in from the beginning or retrofitted later to meet resident demand, they add value—both real and perceived—to the properties that have them. 

But with any amenity, be it something as simple as a basketball court or as complex as an indoor pool or rock climbing wall, comes potential liability. Making sure your building or association has enough of the right kind of insurance coverage for its amenities is a crucial part of your board/management team's job. 

Not Your Grandma's Amenities 

Swimming pools (indoors or out) well equipped gyms, recreation rooms and playgrounds are considered standard features by many. Hot tubs, saunas, roof decks, wine cellars, and concierge services are amenities with a definite lean toward luxury. Regardless of personal opinion on what is standard versus what's fancy, the first place to look for definition of an amenity is the association bylaws but you may not find one. “But don’t be surprised if you do not find a defined 'Building Amenities' description in the bylaws,” says Todd M. Ross, the managing director at One Point Brokerage, LLC in New York City. “Amenity space is really common space put to specific use for the benefit of the owners and residents of the building, and the term common space or common limited space is defined in the bylaws or proprietary lease. In today’s development terminology, amenities are meant to denote a special use of common space such as a pool, spa, wine room, movie room, or gym; it is more marketing terminology than insurance terminology,” he explains.

New and Improved Amenities

According to Karyl Dicker Foray, CIRMS, CRIS for Chicago-based insurer Rosenthal Brothers, Inc.,  liability policies can include coverage for various items such as a  slip-and-fall exposure, products liability (if someone should become ill as a  result of eating tainted food at an association sponsored event, for example),  host-liquor liability and medical payments to guests of the association and its  unit owners.  

 “A condominium association provides insurance for the outside walls of  habitational buildings, plus common areas (such as grass and walkways)  surrounding the buildings,” she says. “Coverage should also be included for a clubhouse, gazebo, pool, storage areas,  parking facilities, tennis courts and any other areas owned by the association.”  

Generally the amenities, also known as the common elements, of a condo will be  defined in the building or association's offering plan, condo declaration, and  sales brochures. In a cooperative apartment, they're defined in the building's  occupancy agreement or proprietary lease.  

“The building amenities are collectively owned by the unit owners, which is why they are referred to as common elements. A separate policy needs to be in force to cover this exposure,” says Joel A. Davis, regional marketing director at Community Association Underwriters of America, Inc., a nationwide insurer. “The coverage from an individual homeowner’s policy would be inadequate to cover all of the common elements. Ideally, the insurance agent for a homeowner should make certain that the homeowner’s policy only covers the unit owners’ property and that there are no gaps in coverage.”  

Douglas Fenniman, CPCU, ARM, senior vice president for Arthur J. Gallagher & Co. in New York City, says amenities these days can run the gamut from the traditional swimming pool or tennis court to “things that appeal to the younger generation, like roof decks with barbecues, children’s play areas, billiards, recreation rooms, and wine cellars.”

Determining Proper Coverage 

No matter how it's defined in your governing documents, proper insurance of all amenities and common spaces is a must, says Ross. “Like any other common element and/or common space, a board is required to provide adequate insurance coverage for areas that they own and/or control.”

Throughout Chicagoland, traditional amenities are often found in communities that are resort-like in nature, and most often have swimming pools, tennis courts, golf courses or lakefront property abutting Lake Michigan, for example.

Pools, for example, must be compliant with all federal regulations and the Virginia Graeme Baker Pool & Spa Safety Act, (which requires drain covers on all pools, spas and hot tubs.)  Additionally, insurance brokers note that they must have a fence with a self-locking gate and rules prominently posted and life safety equipment nearby. Make sure you have stand-alone supplemental insurance for all of your amenities, which are typically underwritten for a certain fee. 

Is Basic Liability Enough? 

Ross further cautions that an amenity can also bring increased liability and related risk. “Trip-and-falls, drowning, overheating, or something that's an 'attractive nuisance' to young children, are examples of increased liability,” he cautions. A board must also properly insure the entity against those types of liability related claims. “Regardless of the type of amenity a building may have or is thinking about putting in, proper property and/or liability coverage is necessary to transfer the risk to the party willing to handle it. In the case of a co-op, condo, or HOA that is the insurance company as opposed to the shareholders, unit owners, or homeowners.”

Fenniman points out that general liability coverage will cover the building for claims against the association in which they are sued for bodily injury or property damage to a third party. “The coverage provides defense and indemnification. Boards should make sure they are covered from a liability perspective, third party, and also from a property perspective, first party. Coverage, on a replacement cost basis, should include loss from fire, theft, and flood in case the 'amenity' is damaged or destroyed.”

So how much is really needed?

“When it comes to liability claims, you never know when enough is enough,” says Ron Sirotzki of Hollinger Services, Inc., an insurance firm in Elk Grove  Village, Illinois. “Unlike insuring a building for a property, one has a good idea on what the  replacement is if it had a total loss. For a liability claim it can be  anything. Therefore, all you can do is work within the budget and make a  prudent decision based on the exposures the association faces each and  everyday.”  

What Should Be Covered?

Since June 1, 2002, the Illinois Condominium Property Act (ICPA) has outlined  the minimum coverage every condominium association must purchase for these  types of amenities, so working with an expert who can guide you in making sure  that your building is insured properly is a must. 

The most commonly required types of insurance are property, equipment breakdown,  commercial liability, fidelity, directors and officers liability, hired and non-owned auto liability, auto liability (if they  own a vehicle), workers’ compensation and umbrella coverage.  

Fenniman recommends enough coverage for peace of mind. “If you and/or other board members are lying awake nights wondering 'how much coverage is enough?' it's time to call your agent to review your policies,” he says. “Generally speaking, we like to see a client carry limits in excess of the property value. With current umbrella risk purchasing groups offering limits up to $200 million, in some cases at very affordable prices, it makes sense to carry higher limits.” 

Wurtzel notes that in New York City for example, many luxury high rise buildings opt to purchase as much as $100 to $200 million of liability coverage. That, however, might be too excessive for Chicagoland-based properties where you have smaller communities with less exposures to insure. 

Work With Your Experts

Association boards will do well to use the experts available when buying, updating, or changing insurance coverage. Fenniman encourages that boards should make sure that both the broker and the insurance company are aware of the amenities on a particular property so that adequate insurance coverage is purchased. Ross also recommends consulting with not only the property insurance adjuster, but also the accountant and the attorney, for a truer picture of adequate property protection. “When price is the only consideration taken into account, you get what you pay for—in both product and services.” 

So at the end of the day, nothing ensures peace of mind more than knowing you and your property are completely and adequately insured. That peace of mind, however, does come with a price tag, so board members and trustees must sharpen their pencils and take advantage of expert help and advice from trusted insurance professionals.

Anne Childers is a freelance writer and a frequent contributor to The Chicagoland Cooperator. Managing Editor Debra A. Estock contributed to this article.

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