GET IN THE KNOW: Atrens-Counsel Insurance Brokers’ Mark Shedden educates us on finding the right home insurance for our suites!
As the choice of a condominium lifestyle has increased over the past 50 years far beyond expectation, the insurance obligations of a Condominium Corporation and the insurance needs of a prudent individual unit owner have not really dramatically changed. Having said that, the exposures that give rise to potential financial loss, to both the Corporation and the unit owner, have become substantially greater and more complex over this period.
Insurance is a very practical and relatively inexpensive way of protecting one’s self from financial losses that result from designated risks. Despite the fact that insurance can maintain one’s financial position after a loss, it more importantly provides ongoing peace of mind from sudden, accidental, and unexpected occurrences that could, without proper insurance, have very long lasting obligations to others.
Condominium Unit Owners who have already purchased condominium unit owner’s insurance, those that are in the process of doing so, or those who simply don’t clearly understand the financial obligations they may have to the corporation, should firstly have a proper understanding of what the Corporation must insure under the Condominium Act.
The following will, in very simple terms, summarize the mandatory coverage the Condominium Corporation must maintain and some of the optional coverage available to the Corporation to be acquired at the discretion of the Board of Directors.
Insurance Coverage Required by the Condominium Corporation:
The Condominium Act of Ontario requires the Condominium Corporation to carry the following types of insurance on behalf of the Condominium Corporation, all registered unit owners, and all registered mortgagees.
Property Coverage: Major peril coverage for all common elements. The property coverage under the Corporation’s policy further extends to cover that property in the interior of the units that was originally called for by the builder, when the building was built, up to builder specifications. The Corporation’s obligations to provide coverage within the interior of the units can only be amended if the Corporation has passed a standard unit by-law.
General Liability Coverage: The General Liability coverage carried by the Corporation covers the Corporation collectively, all registered unit owners from time to time, and all registered mortgagees for legal liability stemming from the common elements causing bodily injury or property damage to a third party.
Directors & Officers Liability: This coverage protects the Corporation for costs incurred in protecting the Directors or Officers should they become legally obligated to pay, individually or collectively, for wrongful acts which occur during the policy period.
Boiler & Machinery: This coverage protects the corporation for losses resulting from the mechanical or electrical breakdown of mechanical and electrical equipment, and / or accidents resulting from pressure vessels.
Optional Insurance Coverage to the Condominium Corporation:
Fidelity Coverage: This coverage protects the funds and assets of the corporation from the fraudulent acts of employees. For the purposes of a Fidelity Bond, Directors and Officers are considered employees. The Board of Directors may elect to extend this bond to provide coverage for the fraudulent acts of property management in addition to the basic coverage.
Human Rights Defense Costs Coverage: This coverage protects the corporation for the cost of defending a Human Rights Complaint against the Condominium Corporation.
Unit owners, requiring proof of the Corporation coverage for personal reasons or to satisfy the insurance requirements of a lender or mortgagee, should refer to the annual insurance certificate provided by the Corporation. This is usually found in the annual general meeting package.
Knowing that the Corporation is adequately insured is only part of a comprehensive unit owner insurance program. Unit owners who are truly looking for full protection should be contacting their insurance broker with the intent of purchasing a “Condominium Unit Owner’s Policy.”
A Condominium Unit Owner’s Policy is the best step towards protecting unit owners’ insurable interests and obligations to the Corporation.
Coverage for the Unit Owner:
Personal Property / Contents: Furniture, Clothing, etc. It is the responsibility of a unit owner to insure their own personal property whether it is in the unit, in a storage locker, or in a vehicle. The Corporation is never responsible to insure the personal property of a unit owner.
Improvements or Betterments: This is a value related to the upgrades made to the interior of a unit beyond builder specifications – Wallpaper, paneling, light fixtures, upgraded flooring, upgraded kitchen cupboards, etc. Unit owners should make reference to a Standard Unit By-Law if the Corporation has passed one as it will better help unit owners determine the value of their Betterments and Improvements.
Additional Living Expenses: This is the cost a unit owner will incur above and beyond normal living cost should they have to move out of the unit because of a fire or other damage so severe that they are unable to live in the unit until the unit is fully restored to a livable condition.
Personal Liability: Covers legal liability stemming from the interior of your individual unit or the exclusive use common elements. Personal liability also protects the owner for legal liability stemming from day-to-day activities outside of the ownership of a condominium unit.
Depending on the unit owner’s policy selected coverage is often available for the following.
Charge Back of Corporation Deductible: Unit Owners may be responsible for the deductible under the Corporation’s Insurance Policy if a loss occurs to any property the corporation is responsible for insuring. This charge back of the Corporation’s deductible would apply if the damage was a result of an act or omission on the part of the unit owner, their tenant, or their occupant.
Loss Assessment: If an insurable loss assessment is valid under the Condominium Corporation’s governing rules, unit owners could be responsible for their share of a special loss assessment. This could be quite substantial.
Additional Optional Coverages: Unit Owners should contact reputable insurance brokers specializing in Residential Condominium Unit Owners policies for additional coverage that may be required, i.e. secondary residences, scheduled jewellery, students away from home, sewer backup, etc.
The above is a brief summary of coverage only and is subject to those terms and conditions of the policy selected by the board of directors and the individual unit owners. Coverage can vary greatly depending on the selected insurance provider, the exclusions and other limitations stipulated by the insurer. Unit owner’s should consult with their independent insurance broker regarding specific needs and options available in the market place.
Knowing what coverage to have as a unit owner and knowing what coverage the Corporation has in place is critical to addressing an insurable occurrence if and when it should involve you or your unit.
How a Claim Works in a Condominium
In a residential condominium, when a loss occurs, the actual cause of the loss is not really important. What is important is whose property was damaged? If the property that is damaged is original to the unit, as called for by the builder, when the building was built, up to builder’s specifications, or as per the standard unit by-law, the corporation’s policy must respond. If the resultant damage is to contents, or upgrades (betterments and improvements), or the cost of moving to an alternate location, the unit owners must seek recovery under their own condominium unit owner’s policy.
The reason we need to know what or who caused the damage is because each condominium declaration (agreement between unit owners and the corporation) has an “indemnification clause.” This clause states that the unit owner shall hold the corporation harmless for all costs incurred as a result of a unit owner’s act or omission. Note: The only cost incurred by the corporation in an insurable loss scenario is an amount up to the corporation deductible.
Example of a Loss:
In a case where a dishwasher hose bursts in a unit, the corporation’s policy will respond to all resultant water damage to common elements including all the water damage to the interior of all the damaged units up to the value of the builder specifications, or to the extent as defined under a standard unit by-law if having been passed. Unit owners will go to their own insurance companies for damage to their furniture or other contents, the value of the upgrades that have been made to the unit since construction, or the cost of relocating out of the unit.
The corporation in this case will charge back the corporation deductible to the unit who had the burst dishwasher hose. The condominium declaration is very specific that unit owners shall maintain everything that services the unit exclusively.
Proper insurance on the part of the Corporation and individual unit owners will ensure that the condominium complex always remains a viable community of livable and sellable units. Maintaining the necessary insurance specific to a condominium will also help move all parties concerned one step closer to that worry free lifestyle that we all seek as members of a residential condominium community.