ASSOCIATION AND INDIVIDUAL DIRECTORS SUED BY MEMBERS FOR FAILURE TO PURCHASE FIRE INSURANCE IN AN AMOUNT REQUIRED BY THE BYLAWS

A fire tore through a 54-unit condominium building in Brooklyn, rendering it uninhabitable. But for the unit owners, the real damage came after the smoke cleared—when they discovered their homeowners association might not have secured enough insurance to rebuild.

This case is a wake-up call for HOAs and unit owners alike: failing to review and update insurance coverage can be more damaging than a disaster itself.

The Homeowners’ Case: “The Board Didn’t Do Its Job”

The fire broke out in April 2019, forcing all 54 units in the building to be vacated. In the aftermath, the owners found that the condominium’s fire insurance policy provided only $13.7 million in coverage—far below what they believed was required.

According to the condo bylaws, the board was supposed to maintain fire insurance equal to at least 80% of the full replacement cost of the building. Based on an architect’s report commissioned by the board itself, that number should have been around $25 to $27 million, meaning the minimum required coverage was $20 million. The owners alleged the board was short by at least $6.4 million.

They filed suit, accusing the board of violating the bylaws and failing to act in the best interests of the association. They also sought to add several individual board members as defendants, claiming they breached their fiduciary duty by renewing insufficient insurance coverage without updating valuations or getting professional input.

The Board’s Defense: “We Acted in Good Faith Based on Old Advice”

The board argued that it had acted in good faith and within its authority. It said it relied on advice from professionals—albeit from 2013—and had simply renewed the same $8.2 million policy every year through 2018, when the fire insurance policy in question was last issued.

They also brought in an appraiser to claim that the replacement value of the building (excluding units and foundations) was only: