Why you need to have an
Insurance appraisal.
It
is now more important than ever to establish the replacement value on the
common property of your strata corporation. Under the Strata Property Act (the
Act), strata corporations are required to insure the property to ‘full
replacement value’. The Act (Part 9, Section 1 and 4) refers to
insurance as follows:
149 (1)
The strata corporation must obtain and maintain property insurance on
(a) Common
property,
(b) Common
assets,
(c)
Buildings shown on the strata plan, and
(d) Fixtures built or installed on a strata lot, if the
fixtures are built or installed by the owner developer as part of the original
construction on the strata lot.
(4) The
property insurance must
(a) Be on
the basis of full replacement value, and
(b) Insure
against major perils, as set out in the regulations, and any other perils
specified in the bylaws.
An appraisal of your property is the most cost
effective and sound way of establishing the value. A recognized insurance
appraisal firm, one that specializes in dealing with the particulars of
condominiums, and is experienced in the BC marketplace, should carry out this
appraisal. Your insurance brokers will confirm if they are familiar with the
company and its work, and may have companies that they can suggest. Most
appraisal firms offer three-year custodial programs with full construction and
mechanical reviews, limited municipal bylaw studies, and updates included as
part of the program.
Many properties, particularly those that are self-managed do not have a
recent appraisal and may be relying on values that have been updated based on
‘factors’ that have been deemed appropriate. In older buildings this practice
can lend to significant exposure if there is a loss on the property. If the property
has a co-insurance clause in the insurance policy, and there is a partial loss
on the property, the strata could be faced with a bill of several hundred
thousand dollars, especially if they have not met the co-insurance requirements
of the contract.
Amount of Insurance
Carried__ X Amount of
Loss =
Recovery Amount
E.g.: On a $1,000,000
building with a 90% Co-Insurance clause where the insured has NOT met the
co-insurance requirements and only carried insurance to 70% of the replacement
cost ($700,000);
$ 700,000 X $20,000*
= $15,555.55 is the amount the Insured will recover in this loss.
$ 900,000
*Note* The larger the loss
in this example, the larger the financial penalty the insured will suffer!
How can you limit your exposure? By having
‘stated amount’ co-insurance. An insurance appraiser should also establish this
‘stated amount’ in order that you have their company to back up the value, with
experience, expertise, and their own Errors & Insurance coverage. This will
ensure that the directors and officers of your strata have fulfilled their
obligations with regards to the Act, and it will also ensure that
potential losses are covered under your insurance policy.
In summary, to protect everyone’s financial
interest as well as the fiduciary responsibilities of the strata corporation’s
directors and officers, an appraisal should be completed on a yearly basis.
Stephen Pollock is the
Manager, Business Development of Suncorp Valuations Ltd. (604) 689-2099, an
insurance appraisal firm that has been serving B.C. since 1989. The article was
written with the assistance of Victoria Kirk of Pro Technical Insurance Service
Ltd. (604) 541-2666.