Insurance requirements for condominiums can be confusing for both boards and unit owners. Determining responsibility for various risks and the insurance options available are important for all stakeholders within the condominium community. In a world of increasing litigation, it is important to know who is responsible for what and to maintain adequate insurances for your responsibilities. Underinsured or uninsured parties can potentially lose big if adequate insurance is not held by the condominium corporation (the "Corporation") or an owner.
Corporation Insurance
The Condominium Property Act, 19931 imposes a duty on the Corporation to carry insurance for the benefit of the Corporation and the owners for the common property, common facilities, structural properties and service units2. All Corporations must maintain insurance coverage under a master insurance policy with annual reviews and appraisals of the common property and main building structure. The master policy protects against major perils in an amount equal to the replacement cost of the insured property and against any other perils that are specified in the bylaws of the Corporation or directed by the board.
It is important to understand what is covered by the master policy of a Corporation. All too often, owners believe the master policy protects them against the loss of their belongings and improvements to their unit. However, this is not the case. Generally, a standard unit description (the "SUD") is set by the developer during construction, which the Corporation and their owners inherit. The SUD details the baseline unit the Corporation is responsible, through insurance, to rebuild should there be a loss within the unit for which the Corporation's insurance is triggered. However, any upgrades or improvements and any belongings lost by the owner will not be covered by the master policy.
Owners Insurance
Owners should understand what their responsibility is with respect to insurance for their unit. In addition to reviewing and understanding the master policy for the corporations, owners should review the corporation bylaws to understand the SUD to own their responsibilities. Further, if you are not the original owner, determining the SUD becomes more important, as previous owners may have improved the unit prior to your purchase. As noted above, owners are responsible for improvements and betterments which are additions to the SUD and their personal belongings contained in the unit.
To protect their investment, owners should maintain their own condominium insurance policy. Generally, an owner's insurance policy will offer coverage in six areas which the master policy held by the condominium corporation will not cover.
1. Personal Property & Contents
Provides an owner coverage for the personal contents in their unit, which is not covered under the condominium corporation master policy.
2. Betterments and Improvements
Protects an owner from loss where the owner has upgraded aspects of their unit (flooring, cabinetry, etc.) for more expensive furnishings than those contained in the SUD.
3. Loss Assessment Coverage
Protects the owner in the event of damage to common property where the master policy limits were exceeded.
4. Deductible Buy-Down
Protects an owner by reducing (buying down) the deductible payable on the master policy of the Corporation if the owner is responsible for the claim.
5. Third Party Liability
Protects against unintentional damage or injury caused by a third party within your unit.
6. Contingent Protection
Protects your unit if the condominium corporations master insurance policy is insufficient or fails to protect you.
Conclusion
Insurance is becoming more and more important for both owners and corporations. With more and larger losses, obtaining and maintaining proper insurance is of the utmost importance. Underinsuring by a Corporation can result in a loss for the owners. Under or failing to insure by an owner can result in all of their investment and belongings being wiped out.
Footnotes
1. The Condominium Property Act, 1993, SS 1993, c C-26.1 (the “Act”)
2. Ibid, at s.65(2)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
