Unique Insurance Needs For Condominium Properties

Strata-titled properties (condos, townhouses, etc.), bring to light unique and often overlooked risk exposures. It is for this reason that the majority of condo owners do not carry sufficient insurance. Some of the reasons for this lack of insurance or inadequate coverage are:

• Insuring a condominium unit is complicated by the fact that there are two parties involved—the owner of the unit and the condominium corporation.
• Coverage for “Betterments and Improvements” are not covered under the condominium corporation’s Master Insurance policy.

Strata Master Insurance Policies

Strata Master Insurance policies typically provide coverage for the building and its common areas, such as walls, roof, floors, elevators, swimming pools, and any associated out buildings. These policies do not cover, however, appliances, upgrades, and other items in each owner’s unit.

The coverage limitations of the typical Strata Master Insurance policy leave insurance gaps that the appropriate condo insurance package can fill.

Loss Assessments

One risk that is unique to strata-titled properties involves the issue of ‘loss assessments.” Condominium corporations insure all building units within the condominium corporation complex, including common areas, through a Master Insurance policy. Because the common areas of a condominium complex are available for the shared use by all unit owners within the complex (sidewalks, lobbies, hallways, exercise rooms, swimming pool, meeting and party rooms, etc.), there is a shared responsibility amongst all owners when a claim is made against the condominium corporation’s Master Insurance policy.

How does this shared responsibility work in the context of insurance?

Scenario One: A visitor slips on one of the condo complex’s sidewalks because the snow and ice have not been cleared. The visitor bangs his head, is paralyzed for life and unable to work. If the condominium corporation is sued, their liability insurance will usually cover their legal costs and any possible judgement against them.

However, if the financial value of the claim is very large and the condominium corporation is under-insured for the amount of the judgement, each unit owner is now assessed to cover the shortfall.

Scenario Two:  Some condominium corporations purchase Master Insurance policies that have a very high deductible (i.e. $10,000), for property claims. Again, each unit owner can be assessed to pay a portion of the deductible when a loss occurs and a claim is filed. It is also quite common for one unit to be assessed the entire deductible in some cases, depending upon the circumstances surrounding the claim.

Scenario Three: Some condominium corporations fail to buy enough insurance to rebuild at today’s construction costs. Should the building suffer a serious loss, and the condominium corporation’s level of coverage is inadequate—each unit owner would be assessed to pay a portion of the claim.

In all cases, it becomes important for the investment property owner to add to his/her policy adequate coverage for such ‘loss assessments’. Talk to us about this critical coverage need.

Betterments and Improvements

When purchasing a condominium unit, the purchaser is buying the unit—with its improvements. However, the Strata Master Insurance policy provides coverage for the unit as it was originally built by the owner developer. Therefore, any upgrades to the unit by you or by previous owners, such as lighting fixtures, air conditioners, flooring, kitchen and bathroom cabinets, countertops, floor and ceiling mouldings, etc., requires additional coverage, referred to as “Betterments and Improvements.”

While condominium laws require that the condominium corporations have their own insurance that protects the structure and common areas of the building, upgrades are almost always excluded from the condominium corporation’s Master Insurance policy. It is the responsibility of the individual unit owner to insure the upgrades to their unit in the event of loss—regardless of who made the improvements.

Note: Most condo owners do not have adequate insurance to cover this type of loss.

NOTE TO INVESTORS

Typically, the walls of the condo unit, as well as the plumbing and electrical lines within them are considered part of building’s structure, which in the event of a loss would be covered by the strata corporation’s Master Insurance policy.

However, the laws vary from one province to the next and there is emerging case law that makes this a grey area. (See Emerging Trends for additional details.)

Therefore, it is very important to:

• Read carefully the Strata Corporation’s by-laws regarding their insurance decisions.
• Read carefully the Master Insurance policy to confirm the level of coverage provided.