Condo Insurance: The Buck Stops Here

By Harold Weidman

Over the past several years, condominium corporations have struggled with events or occurrences which have impacted not only the macro but micro markets including weather-related flooding and water-related insurance claims. Increases in premiums, due in part to the effects of 9/11, seem so distant but the insurance industry is still playing catch up.

Now, the market conditions are changing where insurers are paying out more than the premiums they are taking in. This has resulted in a reduced number of insurers participating. 

Next to utilities, insurance is one of the more expensive direct and unavoidable costs for a condominium corporation. Condominium corporations are finding ways to lighten this burden such as:

• Setting up an insurance reserve fund to offset smaller sized losses to keep a clean claims record,
• Implementing an aggressive risk management protocol program, and
• Increasing the corporation deductible and changing the By-Laws to make any unit owner responsible for the deductible (subrogation) when they are the cause of the damage.

Where the unit owner’s insurance policy has the option of a “Buy Down Deductible”, it is important that the owner get offsetting coverage. A corporation’s deductible can be a significant amount for a unit owner to have to pay. The revised regulations currently under review had a $50,000 maximum; however, regardless of the deductible it can be an onerous predicament for an owner.

For converted or older condominiums, many insurance companies are now calling for the reserve fund report to study the chronological age of items such as roof finishes or heat re-circulation lines which may give them a snapshot of the risk related to such items.

Corporations may also have to deal with “Unit Owners’ Improvements and Betterments”. These continue to be an elusive moving target for Boards to properly identify and then quantify. Without getting into a protracted explanation of the pros and cons, many corporations, through changes to the By-Laws, are making Unit Improvements and Betterments the responsibility of the unit owners.

As well, the new legislation could subsequently introduce identifying the Standard Insurable Description to create a clearer differentiation between a standard unit finish versus upgraded finishes or betterments is under consideration and supported by Boards as well as insurance industry professionals.

Water and fire do not respect legal boundaries and when major losses have occurred there has been great confusion in the insurance industry on how to break down the loss between the various stakeholders. Suffice to say the corporation’s policy is typically much more comprehensive in coverage than the individual unit owner’s insurance policy and the corporation’s policy pays out first on any loss.  This issue will continue to raise problems particularly given the current market trend of unit owners who are more focused on upgraded and enhanced unit finishes over common amenities. 

In future articles, I will address several factors that impact the Corporation’s insurance, provide insight on how best to determine the proper levels of insurance, and why you would want to have your Standard Insurable Unit Description defined.