There often comes a time when the desire to live in a big city takes hold. Perhaps the children have grown up and flown the coop, suddenly making the large house in the suburbs feel a bit empty. Or maybe one wants a second home closer to where they work, or simply seeks easier access to attractions like museums, theaters and nightlife, not to mention local grocery stores and restaurants.
There are all sorts of reasons why people want to live in an urban environment like a brownstone, condominium or co-op loft in a former warehouse. But living in the city invites more complex risk exposures than homes outside the city present.
Joint community living in a condominium or co-op loft, for instance, poses significant perils, according to Peter Beeson, co-founder and president of Fit Insurance, Inc., a Bellevue, Wash.-based insurance agency.
Peter said the financial pitfalls that can arise from the special assessments levied by these buildings' homeowners associations (HOAs) for property and liability losses are often larger than the HOA's reserve fund. Even if the reserve fund is sufficiently capitalized, the association might have to charge a special assessment in an emergency situation, particularly if the HOA does not have adequate insurance covering common areas.
"When you live in a condo or co-op, you are no longer the captain of your own ship," Peter explained. "You are now the member of a community, and are financially jeopardized by others' actions or inactions. There are far more bad things that can happen to you than when you were an independent homeowner."
Particular Perils
Imagine you live on an upper floor of a high-rise condo and a neighbor or friend with a small child comes over to visit. The toddler surreptitiously stuffs a toy into the toilet that backs up and floods the floors below. While such damage can be significant in a house, the cost pales when compared to the damage in a condominium housing other affluent individuals with expensive furnishings and fine art and beautifully designed apartment interiors. "The liabilities are huge—well into the millions and millions of dollars, and it's your responsibility," Peter said.
He provided another example (an actual claim filed by a client) that involved an exchange student from a foreign country who spent time with a wealthy family at their Seattle condo. "The young fellow thought the sprinkler head hanging in the closet was a hook, and when he hung his coat from it, the sprinkler automatically triggered in the entire complex, resulting in a huge claim that exceeded the reserve fund," Peter noted.
There is also the risk of claims involving condo owners who neglect to close a building's garage doors upon leaving the facility, exposing fellow homeowners to the theft of expensive automobiles and break-ins. Similar risks are presented by owners that lose their elevator and/or garage key fobs.
Warehouse lofts that have communal entertaining spaces on roofs also present unique risks. "If a loft owner is on the roof barbecuing some steaks and forgets to properly shut off the permanently-plumbed natural gas because they weren't used to doing this in their suburban home, they may inadvertently torch the entire building," Peter said.
