LIABILITY FOR PAYMENT OF INSURANCE DEDUCTIBLE

One of the more contentious issues, which arise within a strata corporation, is who pays for the cost of repairing damage caused to the building. While I don't propose to engage in a lengthy discussion about who is responsible for undertaking the actual repairs, I do feel it is important to point out an important distinction between "responsibility" versus "liability". "Responsibility" involves the question of who is responsible to fix the damage (ie. the strata corporation's responsibility under section 72 of the Strata Property Act to repair and maintain the common property). "Liability" involves the question of who is ultimately responsible for paying the costs of those repairs. An owner who damages property (whether it be the common property or another strata lot) is generally liable for the cost of repairing that damage, notwithstanding that the strata corporation or another owner may be responsible for making the repairs. Matters are further complicated when the damage is extensive enough to involve a claim under an insurance policy.

The case of Strata Corp. VR 2673 v. Comissiona (2000)(BCSC) gives some guidance in this area. The facts of the case are not reviewed in any detail in the judgment but it appears that there was water leakage from the Comissionas' strata lot which caused damage to the common property. Their liability was not in issue. The damage was severe enough to require that an insurance claim be made. The issue was whether or not the Comissionas were liable to pay the insurance deductible.

Before proceeding further with a review of that case, a brief overview of the provisions of the Strata Property Act (the "Act") is in order. The Act requires the strata corporation to insure the building, and in particular, the common property (s.149). Section 158(1) states that the insurance deductible is a common expense to be contributed to by all owners on the basis of unit entitlement. Section 158(3) allows the deductible to be paid from the Contingency Reserve Fund without a 3/4 vote. Section 158(2), reproduced below, addresses the issue of the payment of the deductible.

"Subsection (1) does not limit the capacity of the strata corporation to sue an owner in order to recover the deductible portion of an insurance claim if the owner is responsible for the loss or damage that gave raise to the claim."

The application and meaning of this section was really what the court in Comissiona had to decide. After reviewing the past case law, the court held that there is nothing which prevents an insured person or entity (ie. a strata corporation) who has made a claim under an insurance policy from suing the person who caused the damage for the amount of the deductible. (This was previously in question. In Lalji-Samji v. Strata Plan VR2135 (BCSC)(1992) the court held that an owner could not be sued for the cost of repairing damage against which the strata corporation was required to have insured). The court in Comissiona distinguished Lalji-Samji on the facts of that case and relied on an old English case for the right of an insured to sue for the amount of the deductible they had to pay. This conclusion is, of course, reinforced by s.158(2) of the Act.

The court, however, held that s.158(2) does not create a right to sue an owner for deductible. Rather all it does is not restrict the strata corporation's ability to do so. What is required is a bylaw which permits the strata corporation to sue an owner in such circumstances. This is a most interesting interpretation and application of that section. (One with which the author, with the greatest of respect, disagrees). One should also note that the bylaw to which the court makes reference, is quite a different and distinct thing from a bylaw which automatically makes such an owner responsible to pay the deductible. The latter type of bylaw denies one any form of due process and is inappropriate.

While the Comissiona case addresses the issue of the payment of the deductible, it does not answer one remaining and important question; must the strata corporation make an insurance claim? Clearly the cost of completing the repairs is a factor. If the repairs are less than the deductible then no claim should be made and the responsible owner(s) should be pursued for the whole costs. If the costs exceed the deductible then a decision must be made as to whether or not the owners will "self-insure" (ie. pay for the repairs out of the Contingency Reserve Fund or by way of special levy) or make an insurance claim. (While the strata council has the authority to make such a decision, it might be an issue best put to the owners as a whole). Keep in mind that the strata corporation has a duty to repair and maintain the common property and this may very well necessitate the making of an insurance claim, especially if the owners refuse to pay for it themselves.

If the strata corporation chooses to pay for the repairs on its own, then it would only have the right to sue the responsible owner(s) for the costs of the repairs if the damage was not something against which the strata corporation was required to insure under section 149 of the Act (based upon the decision in Lalji-Samji. An owner, under the terms of the Act, is a named insured of any policy taken out by the strata corporation and is entitled to benefit from it). If an insurance claim is made, then the strata corporation can sue for the amount of the deductible. How these principles are applied and decisions made, will of course vary from situation to situation.

Shawn M. Smith is an associate lawyer with the law firm of Cleveland & Doan located in White Rock and may be reached at 536-5002. This article is intended for information purposes only and nothing contained in it should be viewed as the provision of legal advice.