The fundamental problem, I believe, is that condominium insurance just isn’t sufficiently profitable for the insurers. I think the reason is that the premiums are based on the risk of large claims (say, insured losses of $100,000 or more) … and in actual practice condominium corporations often have many smaller claims.
For example: If one considers a 100-unit condominium, there might be one or two small insured events (affecting one or two of the units) each year. If those claims are to fall upon the condominium corporation insurer, they would represent quite frequent, repeating, annual risks (for the corporation insurer). On the other hand, if those claims fall upon the unit insurers, they would represent quite rare or occasional risks (for the unit insurers).
My “lay” understanding (gained from insurance brokers) is that corporation insurance isn’t priced or underwritten for those sorts of small, repeating claims. On the other hand, unit insurance (like any homeowner insurance) is generally priced or underwritten for such occasional risks (to the unit insurers).
This tells me that the answer may be to reduce claims on the corporation insurance and “shift” those risks to the unit insurers (or have the condominium corporation self-insure against these sorts of smaller risks). Here are two ways in which to achieve this:
1. Remove certain features from the standard unit description, namely features that are prone to frequent water damage – like flooring, baseboards, countertops, cabinets and perhaps even drywall. [This can be done by passing a bylaw.]
2. Negotiate reasonably large deductibles on the corporation’s policy (which, as noted above, is happening anyway). Also, consider taking steps to shift responsibility for the deductibles (as much as reasonably possible) to the owners. This can be done by bylaw or (when further anticipated amendments to the Condominium Act arrive) by amending the Declaration.
Again, the key is to try to reduce the “pressure” upon the corporation’s insurance – particularly from frequent smaller claims – and to shift those risks to the owners (or have the corporation self-insure for those risks).
This article first appeared in Condo Law News and is reprinted with permission.
James Davidson is one of the founding partners of Davidson Houle Allen LLP. Jim has been practicing condominium law for over 35 years. He represents condominium corporations, their directors, owners, and insurers throughout Eastern Ontario. His experience also includes building deficiencies, shared property interests, co-ownership and construction law. Jim is proud to be an associate (ACCI) and also a fellow (FCCI) of the Canadian Condominium Institute.