Ensuring You are Insured

Two of the more important requirements imposed on a strata corporation by the Strata Property Act are the mandatory obligations to review the adequacy of a strata corporation’s insurance coverage and to report on the insurance coverage at each annual general meeting (Section 154). Unless a strata corporation creates an insurance committee, the task of reviewing and reporting will typically fall to the strata council and/or the property manager.

So what should a strata corporation consider when it’s time to renew insurance? With respect to property insurance, the strata corporation is under an obligation to ensure that the limits of coverage provide "full replacement value." (Section 149(4)(a)). "Full replacement value" means today’s costs to rebuild the buildings comprising the strata corporation following a significant or total loss. With the costs of construction increasing significantly each year, strata corporations should ensure that the coverage for the policy is adequate – if the limits are not similarly increasing from year to year, a strata corporation should be asking "why not?" A failure to obtain adequate insurance coverage for a total loss will require the owners personally to make up the shortfall in any corporation insurance coverage.

The Strata Property Act mandates a minimum of $2 million in liability insurance for a strata corporation (Section 150 and Strata Property Regulation 9.2). However, $2 million may be inadequate if a strata corporation is responsible for a significant personal injury claim. With recreational facilities, (such as pools, exercise rooms, hot-tubs, woodworking rooms, golf course, marinas etc.), a strata corporation’s chances of a catastrophic injury claim increase. Strata corporations should also be aware that an owner placing objects on the common property and limited common property (such as a pool or trampoline) exposes the strata corporation to liability in the event of an accident. Increasing the liability coverage from $2 million to $5 million or more does not typically result in a significant increase in the insurance premium.

Almost every insurance policy has an insurance deductible. When insurance premiums are high, there is a temptation to reduce the premium by increasing the deductible. However, a strata corporation has an obligation to act reasonably in placing the strata corporation’s insurance policy. If a strata corporation voluntarily opts for a higher premium, that strata corporation may not have acted reasonably if it tries to charge back the higher premium cost to an owner who is responsible for a claim. As a result, at renewal, a strata corporation should investigate whether the deductibles can be reduced and the cost for the reduction, whether through the strata corporation’s existing insurer or a new insurer.

Other matters that a strata corporation should consider upon renewal of the insurance coverage:

What does the existing policy cover and what will the proposed renewal cover? Be aware that policy wordings (and, in turn, coverage) can vary from year to year and between insurers.

Has the strata corporation acquired any new property or assets since the policy was last renewed?

Have there been any alterations to the common property and the limited common property since the policy was renewed? If an owner has made an alteration, has the strata corporation confirmed in writing who bears the obligation to insure the alteration?

What types of activities take place on common property or using common assets – is the liability insurance adequate to cover these activities (e.g. swimming pool or trampoline on common property)?

By virtue of its contracts with others, does the strata corporation have any obligations to insure others, such as employees, property managers, or other independent contractors, and are those people covered under the policy?

Does the strata corporation allow people who are not owners or occupants to use common property or common assets? If so, does this create a risk of a claim against the strata corporation?

What types of claims have arisen in respect of the strata corporation in last year and was the strata corporation’s insurance coverage adequate to respond to those claims?

Has the Act, the Regulation or the strata corporation’s own bylaws changed, altering or increasing the strata corporation’s obligations with respect to insurance?

What exclusions from coverage currently exist in the strata corporation’s insurance policy – is it possible to obtain coverage for these risks for an additional premium?

What new forms of insurance coverage are available that might address a potential liability of the strata corporation?

What new exclusions are being added on an industry-wide basis to property and/or liability insurance policies – does the strata corporation have grounds to make a claim on its existing policy before the policy wording changes?

With respect to the directors & officers liability insurance coverage taken out for the council members and specified others,

- Does the policy wording or the application impose a requirement to report possible claims to the insurer before the expiry of the year – if so, have any possible claims been reported?

- If increased D&O coverage was purchased to address a potential claim, does the risk of a claim remain? If so, should the increased coverage be maintained?

- Should anyone be added as a named insured? For example, if the council has delegated a council responsibility to a committee of owners, those committee members will not typically be named insureds on the insurance policy unless specifically added.

Is the strata corporation contemplating any construction projects over the next year? Are there any exclusions in the policy related to construction-related risks? What additional insurance coverage is required?

The foregoing is not intended to be an exhaustive list of factors to be considered upon renewal of the policy. It is, however, a starting point for discussions with the strata corporation’s broker about coverage.

While it is not mandated that a copy of the strata corporation’s full insurance policy be provided to the owners, an owner (who is a named insured) is entitled to request a copy of the insurance policy from the strata corporation (Sections 35 and 36 and Regulation 4.1(4)). Having a copy of the strata corporation’s insurance policy will assist an owner in placing personal insurance for the owner’s strata lot.

The expanded provisions of the SPA and Regulation dealing with insurance impose an obligation to review a strata corporation’s insurance on an annual basis. However, this requirement can be seen as an opportunity to ensure that the strata corporation is adequately insured before a claim arises.

Allyson Baker