New resident of New Town upset over insurance requirement

March 31--ST. CHARLES -- A month after moving into his new two-bedroom, two-story home in New Town, Larry Smith got a welcome packet that contained an unexpected letter.

It said that Smith was required to name the community's homeowners association as an "additional insured" party on his homeowner's policy.

The purpose, it said, was to protect the board and the New Town community against liability for accidents or injuries that might happen on the common grounds, which include lakes, parks, canals and playgrounds.

Smith, 62, said the letter was the first time he had heard of the requirement. It had never come up before -- even at his Jan. 15 closing.

But wanting to comply, Smith contacted his long-time insurance agent, who he said found the request troubling.

She advised Smith that her company, Safeco, would not make the addition because the board had no financial interest in his property or the home that was constructed on it. They could not be an insured party, she told him.

The designation would allow New Town's governors to be named on any payment for a claim, like if Smith's house was damaged in a storm. It also would provide liability protection for the entire community association -- a much greater risk for an insurance company -- under an individual unit owner policy.

Smith's agent instead offered to name the board as an "additional interest," a designation that would notify the board if Smith missed a premium payment or the insurance was canceled.

Smith called the property manager's office at New Town to tell them of his conundrum and was provided a list of 22 agents who worked with residents to provide the necessary coverage.

Smith said he called all of them, and in many cases their corporate offices too, getting the same response from everyone -- no insurance company would include a community's liabilities for common ground on a homeowner's policy.

Smith apparently isn't the first homeowner who couldn't get the coverage, and New Town isn't the first multiuse community to require it.

New Town, a "new urbanist" development, was built to encourage walking, with narrower streets and various types of homes ranging from about $135,000 to $500,000 that are interspersed with parks, shops and restaurants. It currently boasts more than 1,000 homes and businesses.

Karen Corrigan, an agent for O'Connor Insurance in Creve Coeur, which provides insurance for more than 450 community associations in the St. Louis area, called Smith's situation "a real sticking point."

"It would be almost impossible to find in the personal insurance market," she said.

She said she helps guide community associations when they are crafting their declarations and has notes going back to 2005 mentioning the issue.

"This type of coverage might have been available when the documents were written, but it doesn't exist now," she said. "It's old language; it's a complicated mess really."

Unique to Smith's situation though is New Town's request to protect its governing body on the common grounds. She said most communities have a liability policy to cover those areas.

Marvin Nodiff, a Clayton-based attorney who represents various subdivision and condo associations, said part of the problem is that Missouri has no statute for planned communities. The state adopted a uniform condo act in 1983, but it has nothing comparable for places like New Town.

"It would provide a comprehensive framework for creation, operation, termination, amendments, governance," he said. "The condo act makes it very clear and predictable and certain as to what kind of insurance the association has."

Developer Greg Whittaker said all of the decisions about the insurance requirement had been made by board members; they could not be reached for comment. Lisa Galati, property manager at New Town, referred questions to attorney Brad Goss who also could not be reached for comment.

But in a volley of letters between Smith and Goss that Smith provided, Goss said the provision's intent was misunderstood.

Goss wrote that New Town has insurance on the common ground to cover injuries as a result of its negligence. But it doesn't want to be liable for injuries on the common grounds that are a result of the omissions of the homeowner.

So if a guest at a backyard barbecue stepped into a hole that was left open without any warning or protective barrier and broke his ankle, it would be on the board, the letter said.

But if a guest is served too much alcohol, walks onto the common grounds, and due to his intoxicated condition, stumbled into a lake and drowned, it would be on the homeowner.

Goss also wrote that the requirement would come into play in the event of a fire because homeowners in New Town are required to restore "to substantially the same condition ... with the same vertical and horizontal dimensions as before."

Smith said the explanation didn't help him get any insurance. When he checked into it further, he found two insurance agents were adding the language at their office level.

Mike Nieroda, who owns an insurance agency in New Town, said the practice has been going on for years, but his office isn't doing it.

"If you put the board on the policy, and the company did not authorize you to do that, they'll deny the claim." Nieroda said. "There won't be any coverage, and if there's no coverage, they're going to go after the agency, and we didn't want to put our agency at risk."

Nieroda said because he owns the building where his business is situated, he ran into the same problem as Smith. He said he sat down with town architect Tim Busse and Goss to talk over the situation.

"The attorney said 'That's the way it is, you have to comply, it you don't we'll sue you,'" he said.

Nieroda said he eventually found one insurance company that agreed to a limited version of the "additional insured" requirement, and he submitted it. The board never told him it was unacceptable.

"We were thinking when we moved here in 2006, we would get a lot of new business coming, but we got very little to zilch, and it's because of this clause," he said.

Meanwhile, Smith, who moved to New Town from a loft apartment near Forest Park, has filed a complaint with the Missouri Division of Insurance asking them to look into the situation. He's also had his agent list New Town as an "additional interest" on his policy.

He said the conflict has left him feeling bullied and wishing he would have built in another community.

"I love my home, but I have never lived in a place like this... it is like the novel '1984,'" he said.

Susan Weich is a reporter at the Post-Dispatch. Follow her on Twitter or Facebook.

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