April 2000 - The Cooperator

THE UNPROTECTED CLASS

By Nicholas A. Biondi  

I read with considerable interest the article entitled "Navigating the Bias Minefield" that appeared in The Times Real Estate Section on Sunday, December 18, 1999. The article discussed a May 1997 Federal Race-Discrimination Case where a Manhattan jury awarded $640,000 in damages to an African-American lawyer and his attorney wife, Gregory and Shannon Broome. The jury found that the couple's application to sublet an apartment in a co-op was rejected by the co-op's board for reasons that the jury believed were racial. The case, filed under the Federal Fair Housing Act by the couple against the Beekman Hill House Apartment Corporation, a co-op at 425 East 51st Street stunned co-op boards and their lawyers. The shock was not just because the award was the largest housing discrimination award anyone could remember, or because the case shattered the notion that board's admission decisions were virtually bulletproof. The stunning part of the decision was that several board members were held personally liable for a significant portion of the damages, money that ultimately came out of the board member's own pockets.

I was the president of that five member board who unanimously rejected the sublet application based upon the advice of the co-op board's legal council. My out-of-pocket expenses have been approximately $198,000 to date. The other four board members were personally liable for approximately $200,000 in out-of-pocket punitive damages and legal fees collectively.

An early opportunity to settle the discrimination claims was lost when the settlement proposal was summarily rejected upon the advice of both Beekman's new general council and Epstein, Becker & Green, P.C., the attorneys engaged by Chubb Group Insurance Companies, Beekman's liability insurance carrier. Both the general council and Epstein, Becker & Green advised the board that the discrimination claims were without merit and would be dismissed or defeated because the board's actions were proper, legal and in the best interest of Beekman. When the jury decision was announced, both legal teams put on their sneakers and slithered away.

What advice would I give to volunteer board members who serve without compensation and have the risk of unlimited financial liability? Send a registered letter of resignation immediately .

I know, I know. You're much too smart to be found guilty of discriminating against a member of the protected class-based on the individual's race, creed, color, national origin, physical or mental disability, gender, age, sexual orientation, marital status, citizenship, occupation, and whether children will, or may in the future, reside in the apartment. And besides, we are protected by Directors and Officers Liability coverage. Right? Wrong! The case of Hartford Accident and Indemnity Company vs. Village of Hempstead, 48 N.Y. 2d 218, 422 N.Y. S. 2d 47 (1979) firmly established in New York State that you cannot be indemnified from an insurance company against punitive damages.

Well, since you were acting on behalf of the co-op corporation, the co-op will indemnify you for punitive damages. Wrong again, for both pracical and legal reasons. First the practical. The full slate of co-op boards is generally elected once a year. Legal suits extend over a 2 to 3 year period. You can bet that in the next election, the punitive damages board will be replaced by a new board who will probably refuse indemnification to the old board members. Thus you will find yourself in my position suing the co-op corporation for indemnification.

Now the legal. The Appellate Division of the First Department ruled in Biondi vs. Beekman Hill House Apartment Corporation that indemnification of a corporate officer/director for punitive damages is prohibited as a matter of public policy. That decision is currently under appeal to the Court of Appeals of New York State.

In sum, punitive damages cannot be insured against, nor paid by the corporation. In New York State, the director/officer pays out of pocket. Parenthetically, in 31 out of 50 states, punitive damages can be insured against.

Our society has passed many laws to protect the members of the protected classes -- affirmative action; race preference laws; gay rights bills; the Americans with Disabilities Acts; age discrimination laws; gender laws; fair housing laws. The list is almost infinite.

And yet, in 16 states of the union(3 states are undecided), the laws discriminate against homeowners by not allowing them to insure a risk that has become almost as prevalent today as the risk of fire, earthquakes, wind damage, boiler explosions, accidental slip and falls (so beloved by the American lawyer), and all the other hazards a home is subject to.

Not since the days of Red China, when homeowners were forced to wear dunce hats, vilified and demonized, and in many instances put to death, has a society so discriminated against the unprotected class -- the American homeowner.

I was forced to sell my home to pay an uninsurable (in New York and 22 other states) punitive damage judgement. But for every cloud, there is a silver lining. You do not have to continue to be discriminated against as a homeowner and remain the Unprotected Class -- even if you are in one of the 23 discriminatory states.

For more information on how to protect yourself and your home from the punitive damages hazard, Contact: Nicholas A. Biondi, 330 Garden City Plaza, Suite 212, Garden City, NY 11530. Phone: 516-747-4500 Ext. 133. Email: Nbiondi@aol.com