Volume 23, Issue Number 2, Winter 2017
Insurance Issues

The Case for Unit Owners' Insurance

Why Would You NOT Insure One of Your Biggest Investments?

By Jeff Rodin | Other articles by Jeff Rodin

Would you NOT insure one of your biggest investments? According to a study conducted in 2013 by Abacus data approximately "61 per cent of Canadian condominium ("Condo") owners don't know or incorrectly assume their building's insurance will cover damage to another unit from water or fire that originated in their unit, potentially rendering them personally liable and putting them at financial risk." This study illustrates a real and significant problem facing the condo community.

This issue is hard to comprehend when you factor in the amount of insurance companies that offer tailored products to meet the needs of the condominium community. Condominium unit owner insurance policies have been designed to fill in the gaps of insurance between the corporation's policies and the unit owner's policy. The condominium corporation's declaration or their Standard Unit By-law (S.U.B.) will define what is insured by the corporation's insurance policy. Any insurable items not listed in the declaration or S.U.B. can be covered by the unit owner's insurance policy. This sounds simple enough, right?

So why is there such a large percentage of unit owners exposing themselves to financial risk? The answer is misinformation, an example of which is illustrated in the following question that I am confronted with at 99% of all the town hall meetings I attend. "If my property is damaged by an event that I didn't cause, will the individual responsible for the damages pay for my losses?" This logic may seem flawless to the uneducated consumer, but the reality is that any insurable items not listed in the S.U.B. are the sole responsibility of the unit owner insurance policy, regardless of who caused the loss. This gap in coverage can easily be avoided if the owners have unit owner's insurance.

how the unit owner's policy will respond to a potential gap in coverage. This coverage will respond if the corporation approves a special assessment because the corporations Insurance was either inadequate or exhausted to pay for an insurable claim. How realistic is this event likely to occur? It is quite possible. For example, if the corporation's policy is cancelled for non-payment and during this lapse in coverage a claim occurred, this loss would be then passed on to the unit owners as a special assessment. The unit owners' loss assessment coverage would respond to this assessment whether it was a property or liability claim.

Another question that I am often asked at town hall meetings is "Why do I need sewer backup coverage if I do not live on the ground floor?" Once again this logic could seem flawless, but this has created financial nightmares for many unit owners. Municipal By-Laws are very clear with respect to sewage water; anything that is touched by sewer water must be removed from the unit as it can spread disease. Consequently, sewer backup claims can be very expensive and are not uncommon in highrise condominiums. Sewer backup claims can occur on any floor; if a stacking line gets blocked this will cause the sewer water to back up in the units above. This coverage is usually added by endorsement, meaning that it has to be added to a unit owner's policy - a broker might advise the unit owner to add this coverage; however many unit owners will decline this endorsement believing this coverage is not needed.

Unit owner insurance comes with deductible coverage that deals with another potential gap in coverage. Insurance companies use deductibles as a means to mitigate losses. For example, deductibles can be used to reduce the financial impact of a loss. Deductibles can also be used to deter clients from submitting nuisance claims. Consequently, if a corporation has experienced numerous claims it is common practise for the insurance companies to increase deductibles. In some circumstances the deductibles can be quite harsh; for instance if the building has suffered numerous large water damage claims the insurance company can demand water damage deductibles as high as one hundred thousand dollars.

How does this affect the unit owner with respect to insurance? Currently, the Condominium Act allows the corporation to collect the deductible from the unit owner "If an owner, a lessee of an owner a person residing in the owner's unit with the permission or knowledge of the owner, or any other person or thing that is prescribed, through an act or omission causes damage to a unit, the common elements or assets, if any, of the corporation, subject to section (3), and if the corporation has obtained and maintained coverage for the damage under an insurance policy, the amount that is the lesser of the cost of repairing the damage and the deductible limit of the insurance policy shall be added to the contribution to the common expenses payable for the owner's unit. 2015, c. 28, Sched. 1, s. 91." Therefore, the corporation can charge back the deductible to the unit owner if they caused the claim either by an action that they performed or an action they did not perform.

Deductible coverage will respond to this loss. However, it is very important that the unit owner continually monitor the corporation's deductibles to ensure that their deductible limits match the condo corporation's deductible limits.

There is no doubt that condominium insurance has inherent complications. For instance, almost every claim is being processed by two different adjusters, insurance companies and policies. The condominium corporation is forced to adhere to the guidelines set forth in the Condo Act and maintain adequate insurance. However, there are no laws or regulations in place that force unit owners to purchase home owners' insurance. The good news is that there are a lot of proactive boards and property management teams that are continually promoting town hall meetings to educate their communities. However, at the end of the day, it is incumbent on the unit owner to address these issues or face unforeseen financial losses.

http://abacusdata.ca/allstate-survey-condoowners- lack-of-insurance-knowledge-putsthem- at-financial-risk/
https://www.ontario.ca/laws/statute/98c19