It is often said that we Canadians are among the best-insured (or most over-insured) people in the world. Our insurers have a special talent to devise and sell policies for virtually any situation or potential exposure and we who face those various risks are more than eager to snap them up. But when it comes to condominiums and the interplay between insurance policies held by condo corporations and unit owners, it seems that the insurers in British Columbia did not get the memo, leaving a gaping hole in coverage for unit owners.
CBC news reported last week that a Vancouver condo unit owner without proper insurance was left holding the bag for the $50,000 deductible payable under the condo’s insurance policy for a flood originating in his unit and causing damage to several units below. This is a typical situation and tales of condo unit owners not carrying sufficient insurance are hardly newsworthy. The bankruptcy lines have always included people who failed to understand their potential exposure or who mistakenly figured they could save a few dollars on premiums. Unlucky under-insured condo unit owners in Ontario have felt that sting for over 20 years and many have consequently lost their homes.
The premise of a more recent Vancouver Sun piece is one that we have written about on this blog before, namely that condo unit owners must ensure that they carry proper insurance with reasonable maximums. On that issue, the Sun asked a Vancouver insurance broker for the easy answer to the common problem facing unit owners:
The solution is to make sure your own unit insurance covers the strata deductible. Rees said he pays $20 a year for such coverage, which is worth $100,000.
While definitely helpful for people to know, this concept is not particularly newsworthy either. The story goes on, however, to challenge the long-time notion of us Canadians being so well-insured:
But not all companies will provide that kind of coverage, said Lindsay de Craene of the InsureBC Group.
For example, she said, only two insurers provide such coverage in downtown Vancouver, where there are seven condo complexes carrying a deductible of $100,000, 19 with a $50,000 deductible and one with a $150,000 deductible.
It seems incredible that so few insurers provide coverage (even on an optional basis) to unit owners at condominiums with deductibles of $50,000 or more. A need clearly exists, yet only two insurers heed the call by providing a product to fill the void. (It is a shame that the Sun does not name these two insurers who offer the additional coverage levels that unit owners should run (not walk) to buy.)
The insurance industry’s response to this apparent crisis, created solely by the fact that so few insurers in B.C. offer adequate coverage for their clients, is mind-blowing. That response is summarized in the first paragraph of the Sun article, as follows:
Government must change the rules so the owner of an individual condo unit doesn’t have to pay the huge insurance deductible on the entire condo complex when something goes wrong in their individual unit, the Insurance Bureau of Canada says.
After scratching our heads for a few minutes, wondering whether this opening paragraph is a mistake and thinking that the journalist has surely botched the story, we are gobsmacked as the piece goes on to say:
“We’ve begun to speak to government officials at a variety of levels to say there’s a problem here,” said Lindsay Olson, vice-president of the Insurance Bureau of Canada for B.C., Alberta and Saskatchewan.
“This is becoming a real issue. There’s a shortfall, and I don’t know what a person can do ... if it’s a common expense it should be dealt with as such.”
She said it is important to read the strata council’s bylaws to see who can be held financially responsible for damage to common assets.
In the past, accidental damage to common assets was the liability of the entire strata unless a single owner had been negligent.
But recently, strata councils have been changing their bylaws so they can designate an individual responsible if the damage occurred in their unit, even if that person had not been negligent.
Such a change is allowed under provincial law. “It’s been tested in court and it’s been permitted. It’s been occurring over the last few years,” Olson said. Previously, deductibles for claims made by the strata were in the $10,000 range.
“Over the last number of years what we have seen happening is strata corporations having higher and higher deductibles on the building insurance policy,” Olson said. Often insurers insist on higher deductibles because of multiple claims, especially water damage, in a complex. Some strata corporations have opted for higher deductibles to lower their premiums.
Under the provincial Strata Property Act, the strata corporation is required to review their insurance policy annually and provide a summary to unit owners at the annual general meeting. According to the Insurance Brokers Association of B.C., it’s the unit owner’s responsibility to make sure their own insurance policy dovetails with their building’s policy and strata bylaws.
Let me get this straight: Rather than create and market the hell out of a product to bridge this gap and make a few bucks in the process, the insurance industry advocates changing the law so that owners cannot be held liable for costs arising from their own negligence? This makes no sense whatsoever.
Section 105 of Ontario’s Condominium Act, 1998 clarified the judge-made rule that condominium corporations in this province can pass by-laws to allow the condominium to recover the deductible amount of cost of repairs made necessary by an act or omission of a unit owner. The underlying concept is to allow condo unit owners to act as a collective and pass a by-law assigning financial liability for repair costs to persons responsible for the damage so as to create a strong disincentive for people to be careless. This makes good sense and British Columbia has obviously followed this lead in its condominium legislation, which provisions have reportedly been upheld by B.C. courts. The Insurance Bureau of Canada seems to have a problem with this concept, but why?
Given that they set the premiums and offer varying deductible amounts in insurance taken by condominium corporations, it is the insurers, better than anyone, who know that deductibles have historically only increased and will likely continue increasing. Why, then, are the coverage levels available to unit owners not increasing in lock step? And why are only two or three insurers offering coverage levels that the Vancouver market seems to need as the deductibles at condos there are skyrocketing? Why is the industry association advocating short-sighted, wrong-headed legislative revision rather than encouraging its members to sell additional coverage to fill an obvious void, and perhaps make a tidy profit?
When juries began awarding million-dollar verdicts to auto accident victims on a regular basis, did insurers and their industry association lobby government to implement statutory caps on personal injury awards? Perhaps. In fact, insurers may have initially stood by and left their policyholders swinging in the wind when it became obvious that the standard policy limits were starting to fall short of providing meaningful protection given the trend of higher jury awards. But they eventually began offering optional increased maximums, with the result that many motorists today carry more than the statutory minimum liability coverage because a slightly higher premium can buy coverage of a cool million, or two or even three. Similarly, what right-minded condo unit owner would want only $25,000 worth of coverage for a repair deductible scenario when the deductible amount in the policy of that owner’s condominium is $50,000 or more?
We here at Ontario Condo Blog are not conspiracy theorists, but we genuinely do not understand what the Insurance Bureau of Canada is advocating or why. That uncertainty could easily lead to wild speculation as to the financial viability of deductible coverage in unit owner policies, though the cost for $100,000 of such coverage in Vancouver is said to be only $20 to $100. One might ask whether insurers are losing their shirts on such policies and whether the insurers presently offering such coverage might, as a result, stop underwriting that line of business or raise the premiums into the stratosphere. We will watch for developments and, hopefully, find some clarity from the insurance industry as to why they propose to meddle with condo laws when they should instead be rolling out and selling better coverage to unit owners.
It is worth mentioning that insurers operating primarily in Ontario have not yet publicly indicated whether they intend to lobby for any particular changes as part of Ontario’s wholesale re-opening of the Condominium Act, which is now underway. The insurance industry’s submissions during this process might offer interesting insight into the true state of that industry and the marketplace, and might confirm whether we Canadians still deserve the dubious title of being among the “best-insured”.