4 May 2016 - 21:44, by , in Condo Management, Condominium, No comments
The Insurance Issue

Insurance is a complicated institution that somehow gets even more convoluted in the condo management world. Today, the condo management blog clears the air on important insurance issues.

For most people, the word “insurance” brings to mind mixed feelings and memories. It seems that we are constantly paying premiums and dare not miss a beat, but when the time comes to collect, there always seems to be at minimum a deluge of red tape and in worst case scenarios (which happen more often than not) the words “this is not covered” rings out.

The fallacy of insurance is the idea that with insurance you don’t pay.  Don’t fool yourselves! You end up paying every dime over time due to increased premiums. Insurance is not getting your repairs done for free. Insurance is not having to come up with a large out lay of cash up front. This in itself may be worthwhile, although, you probably could have easily added that cash out lay under your existing mortgage, and today, probably at a lot cheaper rate.

Another misconception is that insurance repairs what is broken. It does not. It covers damages caused by what is broken; but it does not cover what is broken itself.

For condominiums the above plays out with far more complications. Let’s examine these complications – as they pertain to condo management.

First, let's look at the big picture.

The Condominium Act requires the condominium corporation to carry basic property insurance for all owners. This extends to lockers and parking spots. This is probably because the Act recognizes that there is a negative impact on neighbouring units when damage after loss is not completed due to lack of coverage. It also recognizes that it would be an administrative nightmare for the condominium’s management team to track down and manage all owners to ensure that they have insurance.

Thus the Act places the responsibility to carry coverage on the shoulders of the condominium corporation. However, this is where the problems start.

While the Act requires the condominium to carry coverage it certainly does not require the condominium to carry insurance to cover neglect or lack of proper maintenance by an owner. Therefore, when an owner does not fix a leaking toilet or hot water tank, or maintain proper caulking around their tub, or replace a blown off shingle/s on their roof (assuming that the roof is part of the owner’s responsibility), or if the owner turns off their heat during the winter because they are going away for a few days or weeks; under these circumstances the condominium insurance is certainly not responsible for the after-loss damages.

Why not, one may ask? Well, we all know that insurance premiums are directly tied to claims. It wouldn’t be fair that all other unit owners be subjected to higher common element fees as a result of higher insurance premiums just because of the actions or inaction of one owner.

The intent of the Act certainly was not to create unnecessary hardship, an unfair situation, or an oppressive situation for other owners. It is for this reason that the Act specifically excludes the requirement for the condominium corporation to carry insurance coverage for personal upgrades and personal contents. (ie: changing laminate countertops to granite countertops) This also extends to lockers and parking spots. Therefore, lack of maintenance falls under the same spirit and intent and is therefore also not the condominium corporation’s responsibility.

Now let’s look more specifically at what is required by the condominium corporation.

The first thing to understand is that while condominium’s governing documents such as the declaration, by-laws, and rules are in general quite similar, there are specific differences between each condominium corporation, so it is important that each condominium is familiar with what its declaration states.

The Condominium Act 2001 granted authority to the owners of condominium corporations to pass a standard unit by-law and/or and insurance deductible bylaw. This is a topic for another discussion.

Notwithstanding the above, most declarations state that the condominium corporation is not responsible for damages due to negligence (such as in the scenarios noted above). However, most declarations also state that owners shall be responsible for all damages caused by the failure of the owner to maintain and repair his unit, save and except where coverage for same “may” be recovered under the corporation’s insurance policy. The operative word here is “may”.

Concurrently, the insurance section of most declarations state that the condominium is responsible for all damages; “as the board “may” from time to time deem advisable. If the “may” in the insurance section is not applicable then the may in the damage section is redundant.

Therefore, the board is responsible for determining whether or not damages caused are the owner or the condominium corporation responsibility. This allows the board to assume responsibility under the corporation’s insurance for items that an owner obviously cannot maintain. A good example would be an exterior water main located on a townhouse driveway. There is no way that an owner could be expected to maintain a pipe located five to six feet underground even though technically it may be their responsibility. However it is imperative that the board is consistent with their determination.

Now let’s discuss the insurance companies.  One would almost think that there appears to be a major conflict of interest with the insurance companies and brokers. We know that the more claims you have, the higher the premium you pay which means the more money the insurance company is making.

All too often condominium boards and property management companies call their insurance company/broker to find out if a certain loss is covered under the corporation’s insurance and the insurance company/broker is very willing to all too quickly respond yes! We have even experienced insurance companies that have been adamant and even threatening. Our condo management team once had an adjuster contact a unit owner directly with half truths.

Most declarations also have a clause holding the unit owner responsible for all increases to the condominium corporation’s insurance premium as a result of processing a claim on their behalf, and this is transferred to all future purchaser/s of that unit indefinitely. Some argue that it is only until such time as COLA catches up with that cost. Regardless most owners would opt to process the claim in question under their own insurance rather than create a huge impediment that would later be an obstacle in selling their unit.

Best Practices
  1. Corporations should establish rules and educate their owners with regard to what is covered and not covered through the corporation’s insurance, especially with regard to items that are not easily maintained by the owner
  2. Educate owners on how to maintain various component of their unit
  3. Owners should carry their own insurance for repairs after damage
  4. Insurance companies and brokers need to clearly understand that under their governing documents, the corporation is in control with regard to whether or not a claim is to be covered
  5. Insurance agents also have to be held to the same understanding

Next week we’ll talk about how condominiums should ensure that they have passed insurance deductible and unit boundary by-laws.

Want to read more?

Visit the Condo Management Blog


About author:
Mary is the CEO of Mareka Properties (2000) Ltd. She holds a CPM, RCM, and CRP designation, and brings over thirty years of experience to the helm of the company. Additionally, Mary has a thorough knowledge of the legislation governing the industry, an in-depth comprehension of building components, and a proven track record of guiding condominium corporations and boards of directors to success. She's the full package!

Leave a Reply

You must be logged in to post a comment.