When insuring tenant and owner-occupied multi-family buildings (apartments, brownstones, townhomes, and condominiums), insurance companies require information related to the type of construction; the age and type of wiring; plumbing; and heating, including whether the property has central heating, window units or floor vents. Buildings more than 40 years old raise additional concerns about asbestos and lead-based paint. An insurer will also want to know about the structure’s condition – whether the dwelling was originally built as a habitational risk or whether it was converted from a single-family home.
Habitational buildings also present unique liability exposures. As there are multiple families living in close proximity to these properties, smoke detectors, sprinklers, fire extinguishers, and firewalls are important. Insurers may include coverage conditions that require structures to have a specific number of smoke detectors and fire hydrants. They also may call for certain sizes and types of fire hydrants to be in front of the buildings.
Additional liability concerns include public areas such as pools, playgrounds, clubhouses, and building entrances and what safety measures exist to mitigate exposures.
Lender Requirements & Insurance
Lenders also have specific requirements regarding insurance. They require that owners of multi-family structures purchase Property insurance for the loan amount along with replacement cost coverage, loss-of-rent coverage, and, in most cases, Liability insurance and a host of other coverages, depending on the mortgage provider. Typically, lenders will want at least six months in loss-of-rent coverage.
The lender will also request to be listed as an additional insured on the property owner’s policies to protect against ‘‘vicarious liability’’— liability it might indirectly suffer as a result of acts and omissions of the borrower for which the lender can somehow be indirectly or partially blamed.
In addition, lenders require that clients purchase coverage from a financially stable, “A” rated insurance carrier. They want to know the carrier is well-capitalized and in a position to continue providing coverage and pay claims in the event of a loss. AM Best’s financial strength rating (FSR) scale goes from Superior (A+/A++) to Excellent (A/A-), Good (B+/B++), Fair (B/B-), Marginal (C+/C++), Weak (C/C-) and Poor (D).
It’s important to note that policies issued by downgraded insurers may not comply with lender requirements. Be sure to check the lender’s rating agency requirements when looking for coverage for your client and do so periodically, particularly after a carrier is downgraded by a rating agency.