- The Strata Corporation’s Insurance
- Insurable Interest
- Named Insured
- Retaining Insurance Records
- Access To Insurance Records
- Property Insurance
- Bare Land Strata Plan
- Not Covered
- Replacement Value
- Reporting at the Annual General Meeting
- Co-Insurance Clauses
- Boiler and Machinery Insurance
- Crime Insurance
- General Liability Insurance
- Directors’ and Officers’ Liability Insurance
- Other Insurance Needs
- Insurance for Owners and Tenants
- Insurance v. Duty to Repair
- The Keiran Case
This chapter explains the principal insurance requirements for a strata corporation under the Strata Property Act. The chapter also describes some important features to consider when arranging insurance for a strata corporation. Of course, every strata corporation is different. Each strata corporation has insurance issues specific to that corporation. In addition, insurance policies are not all the same.
The insurance information in this chapter is general information of a practical nature. The author is a lawyer, not an insurance expert. Each strata corporation must consult its own insurance advisor to determine whether the corporation has particular coverage, and what coverage the corporation needs. In this manual, a reference to an insurance advisor means someone who is expert in insurance matters, especially insurance for strata corporations.
An owner should never assume that his or her strata corporation carries particular insurance coverage, or that the corporation’s policy covers any particular loss. For information about a strata corporation’s coverage, a strata council member or other owner should first check the corporation’s insurance policy. In addition, a strata council member should speak with the strata corporation’s insurance advisor.
Readers must assess each insurance situation on its own merits, bearing in mind that general information of the type in this book may not suit particular circumstances. For advice about a specific insurance problem, the reader should consult an insurance advisor. Neither the author nor the publisher, Strata Publishing Corp., assume any legal responsibility for the insurance information in this chapter.
The Strata Corporation’s Insurance
For guidance on a strata corporation’s insurance requirements, one must look to the Strata Property Act and regulations, and to a strata corporation’s bylaws. In many strata corporations, however, the bylaws barely mention insurance, except to say that an owner should receive a copy of the strata corporation’s policy on request.
According to section 149(1) of the Strata Property Act, a strata corporation must obtain and maintain property insurance on the common property, common assets, any buildings shown on the strata plan, and certain fixtures. For the purpose of insurance, the regulations define the term fixtures as follows: 1
… “fixtures” means items attached to a building, including floor and wall coverings and electrical and plumbing fixtures, but does not include, if they can be removed without damage to the building, refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items.
In this chapter, every reference to a fixture or fixtures refers to a fixture as defined in the regulations, unless the context requires otherwise.
A strata corporation must also maintain insurance against liability to others for property damage and bodily injury. 2
Apart from the minimum insurance coverage required by the legislation, a strata corporation may also buy additional coverage and other forms of insurance. 3
Initially, a developer must ensure that the strata corporation carries the mandatory insurance. 4 It appears that the developer must ensure that the corporation carries insurance from the time the strata plan is deposited at a Land Title Office. The developer must ensure that the coverage continues for at least 30 days after the first annual general meeting (the “first AGM”). 5 If the developer is still engaged in substantive construction work when the strata plan is filed, the developer may have difficulty obtaining property insurance. If so, the developer may still be able to protect the strata corporation by adding the corporation as a named insured in the developer’s construction insurance.
After the first AGM, an elected strata council presides over the strata corporation. Every year, strata council must ensure that the strata corporation meets its insurance obligations.
The annual insurance premium for a strata corporation’s insurance is a common expense of the corporation. 6
In insurance law, as a general rule, an insured person (the “insured”) cannot enforce his or her insurance policy unless that person has an insurable interest in the subject matter insured. The definition of insurable interest in insurance law tends to be complex. Briefly, a person has an insurable interest in the subject matter insured if that person will benefit from the existence of the subject matter, and will suffer from its destruction. 7 The Strata Property Act provides that a strata corporation has an insurable interest in all property that it is required or permitted to insure under the Act. 8
A strata corporation’s insurance coverage also extends to each owner, tenant, or other person who normally occupies a strata lot, all of whom are considered named insureds under the policy. Section 155 of the Strata Property Act says,
155. Despite the terms of the insurance policy, named insureds in a strata corporation’s insurance policy include
(a) the strata corporation,
(b) the owners and tenants from time to time of the strata lots shown on the strata plan, and
(c) the persons who normally occupy the strata lots.
A named insured is a person that the insurance policy designates as the insured, by contrast to someone who may be covered by the policy but who is not explicitly named.
When a strata corporation arranges insurance coverage, the strata council should carefully review the policy with the corporation’s insurance advisor. Apart from the strata corporation’s coverage, the strata council should ensure that the wording adequately protects every owner, tenant and other occupant.
For example, in Economical Mutual Insurance Co. v. Aviva Insurance Co. of Canada, a strata corporation’s policy failed to adequately insure an owner. 9 Aviva Insurance Co. of Canada (“Aviva”) insured the strata corporation. Aviva’s policy said, in part:
SECTION II – WHO IS AN INSURED
If you are designated in the Declarations as:
a) An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.
b) A partnership or joint venture, you are an Insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.
c) An organization other than a partnership or joint venture, you are an insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds but only with respect to their liability as stockholders. (Emphasis added)
While driving away from a party at an owner’s strata lot, a party guest’s vehicle collided with another vehicle, allegedly injuring several passengers. The passengers sued the strata lot owner, alleging that at his party he served alcoholic beverages to the guest, and that the owner negligently failed to take steps to prevent the departing guest from operating a motor vehicle.
Economical Mutual Insurance Co (“Economical”) insured the strata lot owner under a homeowner’s policy of insurance. Evidently, the strata lot owner notified Economical about the three lawsuits. Economical, however, wanted the strata corporation’s insurer to participate in these claims. Economical reasoned that the strata corporation’s insurance must also cover the strata lot owner because every owner is a named insured under the corporation’s policy. 10 Economical sued the strata corporation’s insurer, Aviva, for an order requiring Aviva to participate in defending these claims.
Even though the strata corporation’s insurance policy covered the owner, that policy only provided the coverage that the insurer agreed to provide. The wording in the Aviva policy only covered an individual, “… with respect to the conduct of a business of which you are the sole owner.” There was no evidence that the lawsuits against the owner were in any way connected with a business of which the strata lot owner was the sole owner. The court dismissed Economical’s suit against the strata corporation’s insurer.
The court also pointed out that the strata council’s apparent omission to provide adequate insurance for the benefit of the owner may give rise to the owner’s claim against the council members and the strata corporation.
Retaining Insurance Records
At the first AGM, a developer must give various records to the strata corporation, including all contracts entered into by or on behalf of the strata corporation to date. An insurance policy is a contract between the insurer and an insured. When the developer delivers the strata corporation’s contract documents, the delivery must include all of the corporation’s insurance policies. 11
After the first AGM, a strata corporation must continue to retain each insurance policy obtained from the developer for at least six years after the termination or expiration of the policy. 12
Access To Insurance Records
Upon request by an owner, by a tenant with access rights, or by a delegate authorized in writing, a strata corporation must make its insurance policy(s) available for inspection and provide a copy. 13 Following a request, the strata corporation has 15 days to make available the policy for viewing or copying. 14 For more information about access to a strata corporation’s records, including an insurance policy, see Chapter 13, Record Keeping.
Every strata corporation must carry property insurance against direct loss to common property, common assets, and buildings shown on the strata plan. In addition, in a stratified building, the strata corporation must insure fixtures built or installed on each strata lot if the developer built or installed the fixtures as part of the original construction of the strata lot. 15 Section 149(1) of the Strata Property Act says:
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.
Recall that for this purpose fixtures means, “items attached to a building, including floor and wall coverings and electrical and plumbing fixtures…”. The definition of fixtures specifically excludes “refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items” if they can be removed without damage to the building. 16 For example, in one case, a coupling on a pipe burst inside the bathroom wall of an owner’s strata lot. The developer apparently installed the pipe coupling as part of the original construction on the strata lot. Water escaped and damaged the strata lot. In the circumstances, the pipe was a fixture as defined in the regulations. The strata corporation’s insurance covered the failed pipe coupling and the resulting damage, subject to the deductible under the policy. 17
This requirement to insure certain fixtures does not apply to a strata corporation in the case of a bare land strata plan. 18
A strata corporation’s property insurance must cover full replacement value for all major perils set out in the regulations and in the corporation’s bylaws. The regulations define major perils as, “fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft and vehicles, vandalism and malicious acts.” 19
In addition to the specific property and perils that must be insured, a strata corporation may also purchase insurance against other perils or liabilities, including earthquake, flood or sewer backup. A strata corporation may wish to amend its bylaws to require the corporation to always carry insurance for specific additional perils, such as earthquake, flood, or sewer backup. A strata corporation could also insure certain fixtures on a strata lot that were not built or installed by the developer as part of the original construction of the strata lot. 20
In British Columbia, certain risks such as earthquake, and in some areas flood, are well known. For this reason, most strata corporations purchase earthquake coverage, whether required by their bylaws or not. Similarly, if there is a reasonable risk of flood, a strata corporation should insure against this peril too, even if the bylaws do not call for flood coverage.
When a strata corporation receives insurance proceeds from an insurer for damaged property, the corporation must promptly use the money to repair or replace the property in question, with one exception. The exception occurs where the strata corporation, within 61 days of receipt of the insurance money, decides at a general meeting by resolution passed by a 3/4 vote to not repair or replace the damaged property. 21 If the strata corporation decides not to repair or replace the damaged property, the corporation, or an insurance trustee holding the money, must distribute the money to each person according to his or her interest in the funds. Payment must also include any accrued interest on the money. 22
Bare Land Strata Plan
In a bare land strata plan, a strata corporation is not required to insure any building, unless the building is shown on the strata plan. In a bare land strata plan, the strata corporation is also exempt from the obligation to insure fixtures built, or installed, on a bare land strata lot by the developer as part of the original construction on the strata lot. 23
Although the Act does not specify coverage for individual strata lots, all strata corporation insurance policies include strata lots to some extent.
The coverage for a strata lot usually includes originally installed fixtures, fittings, appliances, floor and window coverings. Owners’ improvements are not normally insured by the strata corporation policy.
Most policies provide protection against all risks of direct physical loss or damage except as excluded. This is better than a named perils policy but is usually subject to a long list of exclusions.
Sometimes an owner improves his or her strata lot by adding things like marble finishes, hardwood flooring and mirrored walls. After a loss, the owner is surprised to learn that these improvements are not included in the strata corporation’s policy and that the cost to replace or repair them rests with the owner.
Section 161 of the Strata Property Act permits an owner to obtain additional insurance for these improvements. This should be done either through the strata corporation policy insurer, if available, or the owner’s own policy. Insurance for owners and tenants is briefly described later in this chapter.
A strata corporation policy does not include coverage for the contents of individual strata lots, including an owner’s or tenant’s personal property, such as furniture, clothing, jewellery and other personal items. A condominium dweller should purchase an owner’s or tenant’s policy for this purpose, as the case may be. It is helpful to buy the insurance from the same insurer that insures the strata corporation to avoid disputes between different insurers after a loss. Disputes between insurers can take time to resolve and, in the meantime, the owner or tenant is left to fend for him or herself.
Protection against loss of rental income should be purchased by the strata corporation only if the corporation relies on income from property which is rented out. This is often not the case. Even when a strata corporation is in a position to rent building space, the rentals may be infrequent and insignificant. If rental income does not contribute to the strata corporation’s budget in any meaningful way, the corporation may not need rental insurance.
A strata corporation must ensure that its property insurance covers the corporation for full replacement value. This means the full amount of the repair or replacement cost is insured up to the policy limits and subject to any deductible. Replacement value insurance eliminates the problem of determining the depreciated value of the property in question.
Section 154(a) of the Strata Property Act requires a strata corporation to review the adequacy of its insurance each year. 24 The Act only requires a review, not an appraisal. To ensure adequate insurance coverage, a strata corporation should obtain a yearly appraisal of the full replacement value of the property the corporation must insure.
The appraisal should be an independent evaluation conducted by a qualified insurance appraiser. It is not appropriate for the strata council, or a strata manager, to estimate the insurable value. One of the most important reasons for using a qualified appraiser is the appraiser’s expertise. A qualified insurance appraiser may recommend additional coverage for insurance issues that the non-expert does not know about. For example, recent changes to the building code may make certain repairs more expensive. It is the expert’s job to know about these things. With this liability in mind, a qualified appraiser may recommend extra coverage to protect against these increased costs.
During low inflationary periods, a strata council may be tempted to cut costs by reducing the frequency of insurance appraisals. This practice is dangerous, because guessing can lead to uninsured losses.
Reporting at the Annual General Meeting
At every annual general meeting (“AGM”), a strata corporation must report on the corporation’s insurance coverage. 25 When reporting on insurance at the AGM, a strata corporation is wise to highlight any major limitations in the corporation’s coverage and to warn owners and tenants, as the case may be, to carry their own insurance. Insurance for owners and tenants is briefly described later in this chapter.
A strata council that does not obtain a proper appraisal should be aware that many strata corporation insurance policies contain co-insurance clauses that effectively reduce the insurer’s contribution to a loss. If a strata corporation fails to obtain regular insurance appraisals, the corporation may be underinsured.
Under a co-insurance clause, an insured must carry a specific percentage of insurance in relation to the value of the property insured. For instance, a co-insurance clause may require the property to be insured for at least 80 per cent (80%) of its value. If the insured strata corporation carries less than the stipulated percentage of insurance to value, the insured becomes a co-insurer of the property in question. When this occurs and a claim arises, the insurer is only bound to pay the portion of the loss equal to the ratio of actual coverage to appraised value. 26
For example, suppose a strata corporation’s insurance policy contains a co-insurance clause that requires the corporation to insure its buildings for at least 80 per cent (80%) of their replacement value. Imagine also that the appraised value of the buildings is $6 million. To comply with its insurance policy, the strata corporation must insure the buildings for at least $4.8 million, representing 80 per cent (80%) of the buildings’ $6-million value. In this illustration, however, the strata corporation carries only $3 million insurance on the buildings (the insured value). Since the insured value of the buildings under the policy is only $3 million, the buildings are underinsured. Next, suppose the strata corporation’s buildings then suffer a $2 million major loss and the corporation makes a claim under the policy.
The co-insurance clause is triggered when the insured strata corporation fails to carry the required minimum coverage based on the value of the property in question. The insurer first checks to see if the co-insurance clause applies by comparing the insured value in relation to the value of the buildings:
The co-insurance clause is triggered because the buildings are insured for only 50 per cent (50%) of their value, instead of at least 80 per cent (80%), as required by the policy. The co-insurance clause limits the insurer’s pay out this way:
50% x $2,000,000 major loss = $1,000,000 payout
As a result of the co-insurance clause, the insurer will pay out only $1 million, despite having insured the buildings for $3 million. In this example, since the major loss is $2 million, there will be a $1 million shortfall after the insurance pay out. The shortfall is a co-insurance penalty. The insured, the strata corporation, is responsible for the shortfall, which becomes a common expense of the corporation. The owners must pay the shortfall, most likely from the CRF or by a special levy.
In effect, an 80 per cent (80%) co-insurance clause permits under-insurance of up to 20 per cent (20%) without penalty. Similarly, a 90 per cent (90%) co-insurance clause allows underinsurance of up to ten per cent (10%) without penalty. In effect, a co-insurance clause provides a cushion in periods when values are rapidly increasing.
Co-insurance clauses are rarely sought by insurers who insist on regular insurance appraisals and, provided appraisals are obtained, whose policies contain “stated amount” co-insurance clauses. A stated amount clause sets the required amount of insurance. If there is a stated amount clause, the insurer does not need a co-insurance clause. A stated amount clause removes the need, in a claim, to prove the ratio of insurance coverage to the property’s replacement value at the time of the loss. This makes the replacement cost easier to calculate and the policy clearer. So long as the insured carries the stated amount of coverage, the insurer cannot reduce the amount paid in a claim because the strata corporation was under-insured.
The insurable interests of mortgage and other financial lenders may be protected by a “loss payee” clause or endorsement. Essentially, a loss payee provision makes the lender a beneficiary of the proceeds of the insurance, to the extent of their interest in the property, in the event of a loss.
In some cases, a policy may give the mortgagee the right to be notified if the policy is about to lapse.
An insurance policy covers various losses, but not a loss that is specifically excluded from the coverage.
Temperature Extremes, Leaks, Explosions and Faults
A strata corporation policy usually excludes loss or damage caused by dampness or dryness of atmosphere and extremes of temperature or by leakage, corrosion, rot, normal settling, explosion, collapse, faulty material, workmanship or design, and by pollution, except where these things occur as a result of an insured peril, such as fire. Since the regulations define major perils to include explosion and water escape, a strata council should check the strata corporation’s policy to ensure that these perils are covered. 27
Below the Basement
A strata corporation’s insurance policy may also exclude anything below the basement. Since many strata corporations have facilities, equipment and other items on levels that may or may not be considered to be part of the basement, a strata corporation should confirm that these are in the basement, not below the basement, and are covered. If there is any doubt about this, the strata council should obtain a “foundations, footings and below-ground coverage” endorsement.
Some strata corporations, especially those situated near bodies of water, are subject to minor flooding from time to time. Cars and other vehicles parked in or below the basement may be insured under the Insurance Corporation of British Columbia’s (“ICBC”) comprehensive general liability policy. If ICBC pays for vehicle losses caused by water in a parkade, ICBC may claim against the strata corporation to recover its loss. If the parkade is below basement level, the strata corporation’s insurance policy may not cover the loss. Where a strata corporation’s parkade is located below basement level, the strata council should discuss this issue with the corporation’s insurance advisor.
Similarly, an owner is responsible for loss and damage caused to the owner’s vehicle by theft and vandalism. While many strata corporations engage security services, the Strata Property Act does not require them to do so.
A deductible is the portion of the loss that the insured must pay. 28 If an insurance policy has a $5,000 deductible, it means that the insured must pay the first $5,000 of the insured loss. After the first $5,000, the insurer must pay the loss up to the limit of the policy.
Insurers use deductibles to reduce their administration costs and obtain premium savings for policyholders. Deductibles should be set high enough to eliminate numerous small losses while protecting the strata corporation from catastrophic loss. In any event, a strata corporation that buys small deductibles and then relies on the insurance to constantly fix minor problems is quickly forced to take a higher deductible or look elsewhere for coverage.
Commonly occurring deductibles are $500 to $1,000 generally; $1,000 to $5,000 for water damage; $2,500 to $10,000 for flood; $500 for glass; and, five per cent (5%) for earthquake.
At the time of this writing, earthquake deductibles of five per cent (5%) are typical on policies with lower insured values. In a policy with a high insured value, however, a five per cent (5%) earthquake deductible may be onerous. This could be especially so in a strata corporation with a number of separate buildings whose combined insured value is very high. For instance, someone recently told the author about an insurance review for a strata corporation with five buildings. The buildings were insured for a total value of $60 million. Strata council members were horrified to learn that the five per cent (5%) earthquake deductible meant the owners must contribute the first $3 million on each earthquake loss to any one building (5% of $60 million = $3 million).
In the case of earthquake coverage, especially where two or more buildings are insured, a strata council should seek a reduced deductible. Alternatively, a strata council may ask the insurer to agree to separate valuations and deductibles for each building, with one maximum aggregate deductible if there is earthquake damage to more than one building simultaneously.
Although insurers cannot apply more than one deductible to a single loss, each loss will trigger separate deductibles. To limit the total number of deductibles payable when multiple losses occur at the same time, a strata council should ensure that the corporation’s policy contains a maximum aggregate deductible amount per policy period, or an endorsement to this effect.
Who Ultimately Pays the Deductible?
If a strata corporation has to pay the deductible portion of an insurance claim, the deductible is a common expense to which the owners must contribute through their strata fees. 29
If a strata corporation needs a special levy or a CRF expenditure to pay an insurance deductible to repair or replace damaged property, the corporation does not have to first obtain approval from the eligible voters, with one exception. 30 Prior approval is necessary where a strata corporation has previously decided, in accordance with the Strata Property Act, to not repair or replace the damaged property in question.
When an Owner is Responsible
Although a strata corporation’s insurance deductible is a common expense, if an owner is responsible for the loss or damage in question, the Strata Property Act permits the corporation to sue that owner to recover its deductible. Section 158 of the Act says, in part:
158 (1) Subject to the regulations, the payment of an insurance deductible in respect of a claim on the strata corporation’s insurance is a common expense to be contributed to by means of strata fees calculated in accordance with section 99(2) [Calculating strata fees] or 100(1) [Change to basis for calculation of contribution].
(2) 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 rise to the claim. (Emphasis added)
Unless a strata corporation’s bylaws say otherwise, an owner is responsible for loss or damage if the owner is legally accountable or answerable, or liable to be called to account, or if that person is a primary cause. 31 In a typical case where an owner is responsible for damage covered by the strata corporation’s policy, the strata corporation makes an insurance claim for that portion of the loss, if any, over the amount of the deductible. The strata corporation pays the deductible and collects any insurance proceeds due to the corporation. Then the strata corporation claims against the responsible owner for the deductible, subject to any bylaw that establishes a particular threshold for an owner’s responsibility.
In Mari v. Strata Plan LMS 2835, the Supreme Court of British Columbia defined the meaning of responsible for the purpose of section 158 of the Strata Property Act. 32
Mr. and Mrs. Mari had a washer 33 in their strata lot. Due to a faulty switch in the washer, the machine overflowed, causing approximately $9,889 worth of damage to other parts of the building. At the relevant time, the strata corporation’s bylaws apparently provided, in part: 34
INSURANCE BYLAW #124
1. Insurance deductible cost [sic, costs] are the responsibility of the Strata lot owner.
2. The Strata Corporation can borrow funds from the contingency fund if required to pay insurance premiums.
The strata corporation carried property insurance with a $5,000 deductible. To repair the damage outside the Maris’ strata lot, the strata corporation paid the deductible, and made an insurance claim for the balance of the cost of repairs. After the strata corporation paid the $5,000 deductible, the corporation successfully sued the Maris in the Provincial Court of British Columbia: Small Claims Division (“Small Claims court”) to recover that sum from them. The Maris appealed.
On appeal, the Maris argued that the wording in section 158(2) of the Strata Property Act, which permits a strata corporation to recover the deductible, “if the owner is responsible for the loss or damage” (emphasis added) requires the corporation to first prove that the owners were negligent. The Supreme Court of British Columbia rejected the Maris’ argument. Simply being responsible is not the same as being negligent. In Mari, the court held that in section 158(2) the phrase, “if the owner is responsible” (emphasis added) does not, by itself, require a strata corporation to first prove an owner negligent before the owner is liable to reimburse the corporation for its insurance deductible. Instead, a person is responsible within the meaning of section 158(2) if the person is legally accountable or answerable, liable to be called to account, or that person is a primary cause. An owner may be responsible for loss or damage without being negligent.
In Mari, the court noted that if a strata corporation wants to make negligence, or any other legal standard, a precondition to an owner’s liability to reimburse the strata corporation for its deductible, the corporation can change the standard for liability by amending its bylaws. This means that if there is nothing in a strata corporation’s bylaws that makes negligence, or some other legal standard, a precondition for holding an owner liable for the deductible, then it is not necessary for the corporation to first prove that the owner’s conduct reaches the level of negligence, or any other standard, as the case may be. Alternatively, if, for instance, a strata corporation’s bylaw makes negligence the standard for liability, then the corporation will first have to prove negligence to hold an owner liable for the corporation’s deductible.
When an Owner Cannot be Held Responsible
Recall that despite the terms of a strata corporation’s insurance policy, the Strata Property Act makes various persons named insureds. 35 The named insureds include the strata corporation, the owners and and tenants from time to time of the strata lots shown on the strata plan, and the persons who normally occupy the strata lots.
In general, in insurance law when an insurer indemnifies the insured for a loss, the insurer acquires the right to sue a wrongdoer who caused the loss in question, with certain exceptions. This is called the insurer’s right of subrogation. The insurer controls the lawsuit and the insured must cooperate, for example, by giving evidence at the insurer’s request in the insurer’s court proceedings against the wrongdoer.
The law of subrogation is complex and provides for certain exceptions. In simple terms, one exception to the insurer’s right of subrogation occurs where the insured accidentally causes the loss in question. This exception prevents the insurer from suing the person insured under the policy for accidentally causing the loss. Suppose, for example, that an owner accidentally causes a loss covered by the strata corporation’s insurance, and the insurer then pays the strata corporation’s loss in accordance with the insurance policy, subject to any deductible and the policy limits. While normally the insurer could rely on the insurer’s right of subrogation to sue the wrongdoer, in this case, the insurer cannot. Why? Because the wrongdoer is an owner and by virtue of section 155 of the Strata Property Act, an owner is a named insured under the strata corporation’s insurance policy.
These subrogation considerations, however, do not prevent a strata corporation from suing an owner to recover the deductible portion of the corporation’s insurance claim, if the owner is responsible for the loss or damage that gave rise to the claim, as explained in “When an Owner is Responsible” immediately above.
In Strata Corp. VR 2673 v. Comissiona, a strata corporation sued the owners of two strata lots for damages caused by water leaking from their suites into common property and other strata lots. At the relevant time, the former Condominium Act required the strata corporation to carry property insurance and deemed the owners to be named insureds on the strata corporation’s policy. 36
The strata corporation’s insurance policy covered the damage, but the loss in question fell within the deductible portion of the policy for which the strata corporation was responsible. The court held that the strata corporation’s lawsuit was not barred because the owners were named insureds in the strata corporation’s insurance policy.
There is no legal bar to a strata corporation’s lawsuit for damages that are covered by its insurance, but which are not payable by the insurer because they fall within the deductible portion of the policy. At common law, an insured who suffers damages caused by another person may sue that person to recover the portion of the damages not paid by the insurer because of a deductible clause in the policy. In Comissiona, the court said that section 158(2) of the Strata Property Act simply records for the first time in a statute what was previously permitted by the common law. In addition, the strata corporation in this case was not in any sense an insurer bringing a subrogated claim against an insured under the policy.
All insurance policies are subject to conditions and strata corporation policies are no exception. There are two types of conditions: statutory and general.
A statutory condition is one required by legislation. All property insurance policies contain statutory conditions. In a strata corporation’s property insurance policy, some of the most important statutory conditions include the following provisions: 37
- if the insured makes a material misrepresentation when applying for insurance, the coverage is void, 38
- if there is a material change to the risk, the insured must promptly notify the insurer, or the relevant portion of the insurance policy is voided,
- the insurer must pay the loss within 60 days after the insured files proof of loss, unless the policy provides for a shorter period, and
- the insured must commence any legal action against the insurer within one year after the loss or damage occurs.
General conditions are at the discretion of the insurer. Although many general conditions have become standard in most policies, some can be changed, often for an additional premium. Typically, general conditions require that a strata corporation must do all of the following:
- the strata corporation must notify the insurer of any problem with the fire detection system, including the cancellation of any contract for their maintenance or monitoring,
- the strata corporation must take reasonable steps to recover a loss, and
- the strata corporation must immediately notify the insurer of any claim under the policy and cooperate with the insurer in the investigation of the loss.
The general conditions may also require a strata corporation to notify the insurer if a strata lot is vacant for more than a certain number of days; for example, 60 days. Since an extended vacancy may adversely affect the strata corporation’s coverage, a corporation should check the relevant requirements, if any, in the corporation’s policy. Alternatively, strata council may ask the strata corporation’s insurance advisor about the policy’s requirements.
Boiler and Machinery Insurance
Although not required by the Strata Property Act, boiler and machinery coverage is necessary for any strata corporation with a boiler or other mechanical or electrical equipment. A boiler can explode with tremendous force and cause major damage.
Boiler and machinery insurance insures against direct damage to the strata corporation’s property as well as property in the strata corporation’s care, custody and control that is caused by explosion of a boiler or other type of pressure vessel. It may also insure against loss caused by accidental breakdown of a boiler or other mechanical and electrical equipment.
The coverage should correspond to the full amount of the insured value of the property, subject to a deductible. A typical deductible is about $500 per accident.
A strata corporation is usually better protected when the same insurer combines both property and boiler and machinery coverage in proper amounts. Having the same insurer cover both risks also avoids disputes between insurers that may occur when different insurers cover different aspects of the same loss.
Depending on the policy, a boiler and machinery insurer may also pay an additional amount, generally up to $50,000, for extra expenses and expediting charges to reduce the duration of a breakdown. Expediting charges may include overtime labour costs and the use of rapid transport to deliver parts. In some cases, coverage for extra expense may also protect against increased repair costs attributed to compliance with the law, including building code requirements. Up to $100,000 may be available if the respective coverages for boiler and machinery and extra expense are stated separately. Although they duplicate each other somewhat, retaining or combining them for $100,000 is likely preferred.
Separate subamounts of insurance may apply to specific types of losses, such as ammonia contamination of refrigerated items and water damage from hot water pipes, heat exchangers and air-conditioning units.
A strata corporation should ask its boiler and machinery insurer to conduct a survey to determine what should be insured and to clarify what will not be covered by the insurer’s standard form policy. On occasion, this can expose a critical, though not necessarily expensive, piece of equipment that is impossible to repair or replace quickly and ought to be covered.
Also, for no additional premium, a boiler and machinery insurer may sometimes provide helpful loss-control services that can eliminate separate expenditures for boiler and machinery inspections.
Equipment Must Be In Use
Standard boiler and machinery policies usually only apply when the boiler and related equipment is in use, or ready for use. A loss, however, may occur while machinery is being repaired. When arranging boiler and machinery insurance, a strata corporation should inquire whether the policy protects against a loss that occurs during maintenance or repair of the boiler.
To be covered, breakdowns must be sudden and accidental, with simultaneous physical damage.
Some policies cover damage that is discovered during regular maintenance or upon repair of unrelated problems. This coverage is very useful where damage to expensive equipment is not detected until long after the loss has occurred. If this is a concern, a strata corporation should approach the insurer for occurrence-based coverage. An occurrence-based policy responds to a loss occurring during the period of the policy regardless of the date of discovery of the loss, even if discovered years after the expiry of the policy.
Although boiler and machinery insurance typically covers vandalism, this insurance usually excludes losses caused by, or resulting from, fire and water, explosion outside the object, pollution and clean up, flood, earthquake, wind and indirect losses.
In boiler and machinery insurance, it is common to find the following conditions.
- A strata corporation must promptly notify the insurer about a boiler or machinery accident,
- The strata corporation must not undertake repairs or remove evidence without the insurer’s approval, except to preserve property,
- Disagreements over the amount of loss may be settled by appraisers, appointed by the parties, and
- If a strata corporation intends to sue the insurer over coverage, the strata corporation must sue within a specified time.
Strata corporation policies contain different crime coverages.
At a minimum, crime coverage should protect against losses caused by employee dishonesty. The policy should also cover the loss of money, securities and other property in a robbery.
A typical amount of insurance for employee dishonesty is $10,000 per employee or, if the employee cannot be identified, $10,000 per loss. For robbery, the limit is lower, usually $5,000. Often, there is no deductible. If a strata corporation does not keep large amounts of cash on site, these coverage amounts likely provide sufficient coverage. If a strata corporation experiences seasonal or bonus periods that create additional risks (for example, periods with significantly more money or people on site), the strata corporation should adjust its coverage accordingly.
When changing insurers, it is very important to notify the insurer on the expiring policy of any anticipated or potential losses that may have occurred during the period of the expiring policy, even though they have not materialized by the time the policy expires. This better ensures the later recovery of these losses from that insurer after the policy expires. The new insurer will not pay such a loss unless there is a “loss under prior policy” provision. A “loss under prior policy” provision ensures that a recently discovered loss that would have been covered under a prior insurance policy is covered under the current policy.
Often, after termination of the policy, an insured has a period of time to discover and report losses to the previous insurer, if the loss occurred during the previous policy period. In the case of crime coverage, it may also be possible to obtain an extended reporting period following termination of an employee. This will cover additional losses, not yet discovered, arising from crimes committed by that employee prior to termination.
Definitions Creating Duplications
A strata corporation should check the definition of “employee” in the corporation’s crime coverage. Paid employees, including employees of strata managers, are likely covered while in the regular employ of the insured. This may create a duplication of coverage with a strata manager’s own errors and omissions insurance. If so, the strata corporation’s duplicated coverage may be traded for coverage improvements in other areas.
What You See is What You Get
With most crime coverage, the property stolen need not be owned by the insured. The insurer will cover the actual cash value of the stolen property or the cost of replacing it.
Usually, the insurer will not pay for the costs of establishing a loss; nor for consequential damages such as loss of potential income. Typically, the strata corporation must also be able to prove the loss without computations of inventory or profit and loss.
General Liability Insurance
Liability insurance is not an option — the Strata Property Act requires it. Section 150 of the Act says:
150. (1) The strata corporation must obtain and maintain liability insurance to insure the strata corporation against liability for property damage and bodily injury.
(2) The insurance must be of at least the amount required in the regulations. 39
When the Strata Property Act first came into force on July 1, 2000, the transition provisions created a grace period for strata corporations to comply with this insurance requirement. A strata corporation created prior to July 1, 2000 had until January 1, 2002 to comply with this requirement. 40
At the time of writing, the minimum amount of liability insurance required by the regulations is $2 million. In practice, however, most strata corporations buy liability insurance of at least $5 million. Liability insurance covers claims by third parties for injury to their property or person, arising from operations usual to a strata corporation. Typically, it does not apply to claims from owners for injury to themselves, their personal property or their strata lots.
Liability insurance often covers investigation and defence costs in addition to the sum insured. This is helpful because defending a bodily injury claim can be very expensive.
Liability coverage usually includes medical expense coverage. At the time of this writing, a policy typically covers up to $2,500 per person and $25,000 for all persons, per policy year, for minor medical attention and treatment at the scene of an accident in or around the insured property.
Commonly, policies contain limited pollution coverage, provided the pollution is not usual to the business of the strata corporation or the owners and tenants. Typically, the pollution must be detected and reported to the insurer within a very short time, usually 120 hours. Proximity to the ocean, lakes and rivers can make this coverage especially important. A strata corporation should make commercial owners and tenants especially aware of the terms of the strata corporation’s pollution coverage and urge them to each carry pollution liability insurance.
Health clubs (also called fitness facilities) pose unique liability hazards. A strata corporation should inform its insurers about the specific amenities in the corporation’s health club, if any.
A strata corporation should clarify with its insurer advisor the extent to which the corporation’s liability policy covers injury to persons while using the health club. For example, the strata corporation should ask its insurance advisor whether, and to what extent, the corporation’s liability insurance covers an owner or tenant using the health club. Since an owner or tenant is a named insured, 41 they are likely not covered by the strata corporation’s liability insurance. The insurance will probably cover a guest who uses the health club.
As a loss-prevention measure, a strata corporation should prominently post a sign in every recreational facility in words to the effect that people using the amenity do so at their own risk.
A strata corporation may, by contract, agree to assume the legal liability of another or to otherwise indemnify someone. A general liability policy usually excludes coverage for liability assumed by a strata corporation under a contract. Some policies, however, allow coverage for liability assumed under an “insured contract” as that phrase is defined in the policy.
If liability coverage for contractual liabilities is available at little or no cost, the strata corporation should obtain coverage with a “blanket contractual” endorsement. If in doubt about coverage for any particular contractual liability, the strata corporation should get the insurer’s specific confirmation of coverage.
Some commercial owners are exposed to liquor and other unique liabilities. Ideally, a strata corporation should be named, as a named insured, in these owners’ policies in case the strata corporation is added to a lawsuit against a commercial owner.
General liability insurance makes limited payments to third parties injured in accidents in and around the insured property, subject to certain exclusions. For example, the policy may exclude coverage for persons injured while jogging on the insured property. Typically, the policy also covers incidental medical errors committed by someone who helps an injured third party in these circumstances (other than medical practitioners).
A policy of general liability insurance will contain its own conditions, some of which usually include a requirement:
- to promptly notify the insurer about any claim,
- to cooperate with the insurer to enforce any rights of the strata corporation,
- to refrain from making any payments to an injured person, and except for first aid, to refrain from assuming any obligations to an injured person, without the insurer’s consent, and
- to bring any legal action against the insurer within one year of a settlement or judgment regarding the loss.
Most policies require that a strata corporation must first call upon its property insurance before the corporation’s liability insurance responds to the claim.
A general liability policy may contain a cross-liability clause. If a loss occurs, a cross-liability clause allows the insurer to proceed as if there is a separate policy for each person insured. The clause better protects an insured where there is a conflict between two or more insured persons and one has to defend against the other. 42 A “cross liability” clause ensures that the insurance responds to each insured named in the policy, but it does not increase the amount of insurance.
Directors’ and Officers’ Liability Insurance
Directors’ and officers’ liability insurance (“D&O insurance”) protects strata council members against liabilities for errors and omissions made in the performance of their duties as council members.
Under the Strata Property Act, D&O insurance is optional. 43 As a practical matter, however, D&O insurance is necessary for strata council members.
Strata council members are held to the same objective standard of care as that required of directors of a provincially incorporated company, a cooperative association or an incorporated non-profit society. 44 The standard applies regardless of a council member’s individual lack of experience. 45 Nor can strata council members escape liability by delegating their responsibilities to an outside management company. 46
In one case, 47 for example, the court found that certain council members did not meet the standard of care required by the Strata Property Act. They authorized contracts and transactions that were unreasonable and unfair to the strata corporation and failed to comply with the conflict-of-interest requirements in the Act. 48 The court ordered the council members in question, jointly and severally, to compensate the strata corporation for approximately $190,399 and to pay special court costs amounting to a further $150,000. 49
What is Covered?
D&O insurance covers losses arising from mismanagement by strata council members and, in some policies, also by the strata manager.
At a minimum, coverage for $1 million is recommended. A strata council should have more coverage if the strata corporation is a very large one, or one where the corporation engages in substantial endeavours; for example, in a strata hotel development. Deductibles of $500 or more per claim are common. In most cases, the insurer pays the defence costs, in addition to the amount insured.
D&O insurance is written on a claims-made basis. Generally speaking, the phrase claims made refers to an insurance policy that only covers claims reported to the insurer during the term of the policy. In some cases, a claims-made policy may provide coverage even where the events that gave rise to the claim occurred before the policy began. 50
If a strata corporation has D&O insurance on a claims-made basis, the corporation must report a claim to the current insurer, no matter when the mismanagement occurred. If the strata corporation purchases an increase in D&O insurance to cover a temporary risk, the corporation should consult its insurance advisor before terminating the extra coverage. If the policy provides claims-made coverage, the increased coverage may extend into the future for so long as the particular exposure exists.
What is Not Covered?
Most D&O insurance policies exclude coverage for:
- dishonesty, including fraud,
- bodily injury and property damage,
- personal gain,
- fines or other penalties for failing to comply with the Strata Property Act,
- breach of contract,
- violation of civil rights and discrimination (example, wrongly enforcing an age restriction bylaw).
A D&O insurance policy may also exclude coverage for the purchase or sale of securities or for loss caused by failing to ensure the strata corporation is adequately insured. This makes it extremely important for the strata corporation to purchase the proper D&O insurance and to make sure it is renewed on time each year.
Who is Covered?
In D&O insurance, the strata corporation should be a named insured in the policy.
Other persons may also be added to the definition of insured under the D&O policy, such as a strata corporation’s employees, and security, cleaning and gardening personnel, as well as members of a committee of strata council or the strata corporation, including volunteers. Before adding named insureds to a D&O policy, the strata corporation should consult its insurance advisor. Adding to the list of named insureds may erode the amount of insurance ultimately available to the elected strata council members.
Bylaw To Protect A Strata Council Member
A strata corporation may have a bylaw that requires the corporation to reimburse a strata council member for loss that arises from strata council activities done in good faith. For instance, section 22 of the Standard Bylaws says:
22. (1) A council member who acts honestly and in good faith is not personally liable because of anything done or omitted in the exercise or intended exercise of any power or the performance or intended performance of any duty of the council.
(2) Subsection (1) does not affect a council member’s liability, as an owner, for a judgment against the strata corporation.
Although section 22 of the Standard Bylaws excuses a council member from liability in certain circumstances, this bylaw does not require the strata corporation to indemnify a council member for legal expenses or other costs incurred in the council member’s defence. If desired, a strata corporation may amend its bylaws to require the corporation to indemnify a council member for certain expenses where, for example, section 22 of the Standard Bylaws exempts the council member from liability. To ensure that any amended bylaw to indemnify council members meets the needs of the strata corporation and strata council members, a strata corporation should first obtain legal advice about the appropriate wording for the proposed indemnity bylaw.
Other Insurance Needs
In some cases, the Strata Property Act permits a strata corporation to create sections of strata lot owners to represent the different interests of those owners. 51 A section constitutes a form of mini-government within a strata corporation.
A section is limited to obtaining insurance only against perils that are not insured by the strata corporation, or for amounts in excess of amounts insured by the strata corporation . 52
Air Space Strata Plans
A landowner may create one or more air space parcels above his or her land. Since an air space parcel is treated as land, a building may be constructed within the air space parcel, and then a strata plan deposited in respect of it. The strata plan subdivides the building in the air space parcel into strata lots with common property. 53
The air space strata corporation and the owner of the underlying property regulate their joint affairs in one or more contracts called an air space agreement. The air space agreement should require each party, at a minimum, to maintain the insurance specified in the Strata Property Act, and additional coverage, if appropriate. The agreement must also address each party’s risk of loss of occupancy, use or enjoyment that could occur if the other party’s property is damaged or destroyed.
Unless they are insured under a common policy, the air space strata corporation and the owner of the supporting property respectively must be insureds in each other’s insurance policies. They should each be insured to the extent of their respective interests in the other’s property for access, support, utilities, maintenance and other necessary benefits. If there is a loss, this insurance should be sufficient to protect their respective interests in repairing, replacing or rebuilding the other party’s property should the other, for whatever reason, fail or refuse to do so. It is especially important to have coverage that protects the strata corporation’s interest if the owner of the supporting property fails to make necessary repairs.
The strata corporation should check whether the respective insurance policies of the strata corporation and the owner of the supporting property both contain “other insurance” clauses. Where more than one policy covers the same risk, an “other insurance” clause in a policy says what share of the loss the policy will pay. Problems occur when there are conflicts in the wording of two or more “other insurance” clauses. The strata council should ensure its insurance advisor checks to make sure that all “other insurance” clauses work in tandem. The strata corporation should also seek wording that requires each insurer to give at least 30 days’ notice to all parties with an insured interest of material alteration or cancellation of the policy.
Alternatively, the parties’ respective interests should be recorded in the policies by endorsement instead of merely adding the parties as named insureds on each other’s policies. The policy should be endorsed to ensure all necessary coverage in the air space development, no matter what the policy says elsewhere about indirect, contractual and consequential loss or damage. The general rule is that coverage follows the insureds, not the property, and then only for loss or damage to property in which they have an insurable interest. For this reason, the policies must include all parties to be insured and specify their respective interests. This is critical where, for example, the air space strata corporation has an insurable interest in the underlying owner’s property, and vice-versa. 54
In the case of an air space strata development, there is another reason for capturing the coverage by endorsement instead of relying on the named insured provision alone to ensure coverage. By recording coverage in an endorsement, the strata corporation may better ensure that other provisions elsewhere in the policy do not eliminate or otherwise limit the risks to be insured. Ideally, a copy of the air space agreement between the strata corporation and the owner of the supporting property should be attached to and form part of the insurance policy.
For instance, suppose the pre-printed wording in the main body of the policy says it covers only direct physical loss to the strata corporation. The main body of the policy also excludes coverage for any loss that is consequential or contractual. Imagine that, as the result of a structural collapse in the supporting property, the air space owners above cannot gain access to their strata lots or common property. Without a separate endorsement, the insurer in this example would likely deny coverage because the pre-printed wording in the policy says it only covers direct physical loss to the strata corporation. Alternatively, the insurer might argue that the policy excludes coverage for this loss because it is consequential or contractual. With a separate endorsement that provides appropriate coverage to the strata corporation, the corporation is protected, despite the pre-printed wording in the policy.
Outside Contractors and Contingencies
A strata council should always check that outside contractors carry their own general liability insurance. Likewise, a strata council should ask its professional advisors to confirm that they carry sufficient liability insurance (for example, a strata corporation’s accountant, architect, engineer, insurance broker, lawyer, notary and strata property manager).
An outside contractor’s insurance should be sufficient to cover any reasonably anticipated losses. In a substantial project, such as a large scale building envelope repair, a general rule is $1 million minimum or an amount equal to the cost of the project, whichever is higher. The coverage amount should apply per project or location so it is not exhausted by claims on the other contractor’s projects. Alternatively, an increase to the aggregate amount of the contractor’s insurance may be sufficient.
In a substantial project, the strata corporation should be added as a named insured to the outside contractor’s insurance for its projects. This will not require additional premiums and will ensure the strata corporation has coverage, along with the contractor, should it be named in a lawsuit for loss or damage caused by the work of the contractor.
Similarly, a strata corporation should add the outside contractor to the strata corporation’s property insurance, as a named insured, for the same reasons. In any event, the strata corporation should report all new major projects to the strata corporation’s insurance advisor, who may then recommend any appropriate changes in the corporation’s coverage.
Strata Property Managers
Typically, a strata management contract requires the strata property manager, among other things, to arrange insurance for the strata corporation and obtain property valuations from qualified appraisers. 55
A strata management contract usually also requires the strata manager to carry liability insurance for property damage, bodily injury or death arising from the manager’s willful or negligent acts. If the strata manager is a named insured on the strata corporation’s policy, this may be a duplication of coverage. Since most responsible strata management companies carry this insurance anyway, it is not an onerous request.
In the first two editions, this book strongly recommended that a strata corporation ensure that its strata manager carry both professional liability insurance and fidelity insurance, or failing fidelity coverage, to require the manager to post a suitable bond. To some extent, recent licensing requirements make these recommendations less important.
Effective January 1, 2006, a strata manager who, for remuneration, provides strata property management services to a strata corporation must be licensed under the Real Estate Services Act, unless otherwise exempted. 56 The term remuneration is broadly defined to mean, in effect, a reward of any kind. There are several exemptions, including an exemption for an owner who meets certain criteria. For information about the exemptions which permit a person to provide strata management services for remuneration without a license, see Chapter 9, Strata Managers.
The licensing authority for strata managers is the Real Estate Council of British Columbia.
As a licensee under the Real Estate Services Act, a strata manager must carry a mandatory minimum level of errors and omissions insurance with the Real Estate Errors and Omissions Insurance Corporation. 57 In general, professional liability insurance does not cover property damage or bodily injury. Instead, a strata manager’s professional liability insurance covers monetary loss resulting from the manager’s negligent errors and omissions in activities requiring a real estate license. In other words, this insurance covers most monetary losses caused by the strata manager’s negligence in performing, or failing to perform, strata management services for the strata corporation. 58
In addition, if a strata corporation, or perhaps an owner, is the victim of trust fraud committed by a licensed strata manager, then the strata corporation or owner, as the case may be, is now to some extent protected by a statutory fund, which takes the place of bonding.
According to the Real Estate Services Act, the statutory fund is called the special compensation fund. The Act creates the fund to compensate a person who has lost monies held in trust by a licensed strata manager as a result of misappropriation or fraud by the licensee, or because the licensee did not pay over, or account for, the money to the person entitled to it. 59 The fund, however, only protects money that is related to the provision of real estate services by a real estate licensee. 60 The Real Estate Compensation Fund Corporation administers the fund.
The Real Estate Services Act sets out which losses the fund may compensate (in the statute, called a “compensable loss”) and the procedure for claiming compensation. The time limit for making a claim is two years from whichever date occurs first: 61
- the date on which the person making the claim became aware that a compensable loss occurred, or,
- if, at any time after the conduct that caused the compensable loss, the license of the responsible strata management brokerage was cancelled, the date of that cancellation.
To claim compensation from the fund, a person must make a claim to the Real Estate Council in writing. If the Real Estate Council finds there is reason to believe the claim, then the Council must refer the matter to a compensation committee. The committee may conduct, postpone or decline to hear a claim. If the committee does hear the claim and finds in favour of the claimant, the committee will certify the amount of compensable loss that the fund must pay. 62
The Real Estate Services Regulation sets out the maximum allowable compensation from the fund for a single claimant and against a brokerage. At the time of this writing, the maximum amount payable from the fund to a single claimant is $100,000. 63 If the license of the responsible strata management brokerage is cancelled, the maximum total amount that may be paid after the cancellation in respect of all claims related to that brokerage is $500,000. 64
Since, under the Real Estate Services Act, a licensed strata manager’s insurance covers the manager only up to certain mandatory minimum levels, many managers purchase excess insurance for coverage above these minimums. When considering a prospective strata manager, a strata corporation should confirm that the manager is properly licensed, and ask what excess insurance coverage, if any, the manager carries, and to what extent any of the manager’s excess coverage may benefit the strata corporation.
During strong economic periods in the insurance industry, some insurance brokerages can offer their clients excellent premium reductions. Typically, these reductions reflect the magnitude of a large insurer’s condominium business and the highly competitive state of the insurance market.
A strata corporation, however, should be attentive to significant premium reductions and offers unrelated to a change in risk. Sometimes, these premium reductions spell concurrent reductions in coverage, increases in deductibles or, worse, material changes in the financial security of the insurers underwriting the coverage.
Some large insurers offer relatively limited coverage in a one-size-fits-all approach. If this approach does not meet a strata corporation’s needs, the corporation should consult other insurance brokers or agents for alternative coverage and premium quotations. When insurers compete for a strata corporation’s business, they rarely reduce premiums. Instead, an insurer may offer to enhance aspects of the proposed the coverage.
Insurance for Owners and Tenants
Since every owner or tenant is a named insured in the strata corporation’s insurance policy, 65 the corporation’s policy covers each owner and tenant. Yet, the strata corporation’s mandatory property and general liability insurance do not protect an owner or tenant from every loss they may suffer. The wording of the strata corporation’s policy is critical when determining what coverage the policy provides to each owner or tenant. 66
In addition, the strata corporation’s mandatory insurance does not cover damage to the contents of a strata lot, including the furnishings and other personal property of the owner or tenant. Similarly, the corporation’s mandatory coverage does not extend to an owner’s improvement to a fixture 67 that the developer supplied, or to a fixture installed by the owner. For example, suppose that in a strata lot the owner installs hardwood flooring in substitution for carpeting previously installed by the developer. The strata corporation’s mandatory insurance will not usually cover damage to the hardwood floor because it is an improvement added by the owner. The Strata Property Act anticipates that an owner may obtain his or her own coverage for a strata lot or certain fixtures. 68
The strata corporation has an interest in ensuring that each owner is adequately protected by property and liability insurance for his or her own losses. If an owner suffers a significant, uninsured loss, there is a risk that the owner may default on monthly strata fees and special levies.
Each owner or tenant should get his or her own insurance coverage. Although the Strata Property Act does not require it, a strata corporation should strongly encourage owners and tenants to buy owner’s or tenant’s insurance, as the case may be. To avoid disputes between different insurers in the event of a claim, where practical an owner or tenant should obtain insurance from the same insurer that insures the strata corporation.
The Strata Property Act specifically permits an owner to buy insurance coverage for any or all of the following: 69
a) for perils that are not insured by the strata corporation, and
b) for amounts that are in excess of amounts insured by the strata corporation.
2. A fixture in a strata lot, other than those which the strata corporation must insure under section 149(1)(d) of the Strata Property Act [fixtures built or installed by the developer]. Recall the example above where an owner installed hardwood flooring in substitution for the carpeting previously supplied by the developer. The owner may insure against loss to the hardwood floor. The owner may also insure an item that does not fall within the definition of a fixture in the regulations. For instance, an owner may insure an owner’s washer or dryer that is attached to the building, but which can be removed without damaging the building.
3. Loss of the rental value of the owner’s strata lot, over and above insurance coverage that the strata corporation may maintain. An owner who rents out his or her strata lot to a tenant should certainly purchase rental coverage in the owner’s own insurance policy.
4. Liability for property damage and bodily injury, whether occurring on the owner’s strata lot or on the common property.
In addition, in the case of a strata lot in a bare land strata plan, the owner may obtain insurance for buildings or fixtures built or installed on the strata lot. 70
If an owner is responsible for loss or damage to property covered by the strata corporation’s property insurance, and the corporation pays an insurance deductible in respect of that loss or damage, the strata corporation may sue that owner to recover the deductible, as explained earlier in this chapter. 71 When arranging owner’s insurance, an owner should inquire whether, and to what extent, the policy’s third party liability insurance covers the owner in case the strata corporation claims against that owner to recover a deductible paid by the corporation for loss or damage for which the owner is responsible. 72 If not, the owner should inquire about the availability and cost of such coverage.
Insurance v. Duty to Repair
Some individuals mistakenly use insurance coverage to try to determine who must actually carry out a repair, or who must ultimately pay for it, on the basis of whose insurance covers the problem. This is wrong. Whether and to what extent a strata corporation or an owner has insurance has nothing to do with who must carry out or pay for a repair. 73 Instead, generally speaking, readers should use the following analysis.
First determine who is responsible to carry out the actual repair. Readers will find information about the responsibility to make repairs in Chapter 25, Carrying Out Repairs. In general, responsibility to carry out a repair is determined mainly by the Strata Property Act and the bylaws. Depending whether the problem in question is part of the common property, limited common property, or a strata lot, the Act and bylaws dictate who must carry out the actual repair.
Next, ask who is ultimately liable to pay for the repair. Readers will find information about the responsibility to ultimately pay for repairs in Chapter 26, Paying for Repairs. The Strata Property Act, the regulations and, in the case of deliberate or negligent damage, the bylaws and the common law determine who must pay for all, or any part, of the repair costs.
Finally, if a person is obligated to pay for a certain repair, that person then asks if he, she, or in the case of a corporation, it, has insurance to cover this liability. If so, that person may claim against the insurance policy to cover that liability, subject to the policy’s limits and any deductible.
It may turn out that one person has a duty to make a repair, while another is liable to pay for the cost of that repair. One or both may carry insurance.
For instance, a person who must carry out a repair might have insurance to ensure that, if necessary, he or she will have the funds to carry out the actual repair work. If that person’s insurer pays the claim to complete that work, but it turns out that someone else liable to ultimately pay for the repair, the insurer may be entitled to claim reimbursement from that other person. The insurer may sue the person who, it turns out, is actually liable to pay for the repair so the insurer can recover the money it spent paying the claim. Similarly, the person who is liable to ultimately pay the repair costs may have insurance to cover that expense.
The Keiran Case
Strata Plan KA 1019 v. Keiran illustrates the difference between the duty to carry out a repair and the duty to insure. 74 A coupling on a water pipe burst in the bathroom wall of the owners’ strata lot. Water escaped and damaged their strata lot. There was no damage to common property. The owners were not negligent; high acid levels in the local water supply caused the failure.
Owners’ Duty to Repair
In the Keiran case, the strata corporation’s repair bylaws were apparently the Standard Bylaws. The Standard Bylaws require a strata corporation to carry out repair work on common property, including in most cases building structures and exteriors. The Standard Bylaws also require a strata corporation to carry out repairs on certain parts of a strata lot. 75 Apart from those portions of a strata lot that the strata corporation must repair, the owner must repair the strata lot.
Although the failed coupling and the damage occurred inside the strata lot, neither fell within those parts of a strata lot that the strata corporation must repair. Therefore, the owners were responsible for carrying out these repairs.
Strata Corporation’s Duty to Insure
The Strata Property Act 76 required the strata corporation in Keiran to insure fixtures built or installed on a strata lot, if the fixtures were built or installed by the developer as part of the original construction of the project. Recall that for this purpose, the regulations define fixtures, in part, as items attached to a building, including floor and wall coverings and electrical and plumbing fixtures. 77 In the Keiran case, the strata corporation’s bylaws also required the corporation to insure fixtures within a strata lot.
Since the pipe was a fixture under the Strata Property Act, the strata corporation insured it (and the resulting damage). The strata corporation’s insurance policy had a deductible of $10,000.
The strata corporation, at its expense, repaired the damage for a total cost of $3,787.80.
Although the damage was of a type covered by the strata corporation’s insurance policy, the corporation did not claim against its policy because the amount fell below the $10,000 deductible. Since a strata corporation may recover the deductible portion of an insurance claim from the owner responsible for the loss or damage that gives rise to a claim, the corporation asked the owners to pay for the repair work. 78
Owners’ Household Insurance
In the Keiran case, the owners carried a condominium owners’ household insurance policy with The Wawanesa Insurance Company (“Wawanesa”). The policy coverage varied depending on the nature of the loss. The policy covered loss or damage caused by “water escape, rupture, freezing” with a $500 deductible. While the reasons for judgment in the Kieran case do not state the policy limit for coverage for damage for “water escape, rupture, freezing,” the limit was apparently sufficient to cover the amount claimed by the owners in their dispute with the insurer. The policy also covered the owners for up to $2,500 in the case of an assessment for their share of the strata corporation’s deductible made necessary by a direct loss to collectively owned condominium property (in other words, to common property).
The strata corporation demanded reimbursement from the owners of $3,787.80 for the corporation’s repair costs. The owners then claimed against their Wawanesa policy for that amount.
Wawanesa, however, paid only $2,500 under the owners’ household policy. On the owners’ behalf, Wawanesa paid the money directly to the strata corporation. Wawanesa limited its payout to $2,500. Wawanesa based its $2,500 payout on the policy wording. The policy covered the owners for up to $2,500 of their share of the strata corporation’s deductible made necessary by a direct loss to collectively owned condominium property.
The strata corporation then sued the owners for the balance owing for the cost of its $3,787.80 repairs to the owners’ strata lot. After subtracting the $2,500 received from Wawanesa on the owners’ behalf, the strata corporation claimed the balance of $1,287.80 from the owners. In turn, the owners sued Wawanesa for the balance of the repair costs claimed by the strata corporation.
At trial, the issues were whether the owners were responsible for the $1,287.80 balance of the repair costs, and if so, to what extent their Wawanesa household policy covered those costs.
The Provincial Court of British Columbia: Small Claims Division (often called “Small Claims Court”) found the owners liable to the strata corporation for the repairs. The court ordered Wawanesa to pay the whole amount claimed by the owners under the policy, less the owners’ deductible.
Owners’ Liability to the Strata Corporation
Since the owners had the duty to carry out the repairs on the burst pipe, the owners were “responsible for the loss” within the meaning of section 158 of the Strata Property Act, regardless of the absence of any fault or negligence. The owners were responsible, whether or not the strata corporation assisted by carrying out the repairs on their behalf. The court observed that the strata corporation had no obligation to pay for the repairs, absent the corporation’s duty under the bylaws to insure against it.
The strata corporation successfully sued the owners to recover the corporation’s insurance deductible from the owners.
Wawanesa’s Liability to the Owners
In the owner’s claim against Wawanesa, the court interpreted Wawanesa’s policy in favour of the owners. The court held that the policy covered the owners for the whole cost of the damage to their strata lot, less the amount of any deductible.
Contrary to Wawanesa’s position, the court found that this case did not involve a special assessment made necessary by a direct loss to the collectively owned condominium property (e.g., to common property). Instead, this was the strata corporation ’s claim against the owners to recover the deductible portion of an insurance claim for loss or damage to the owners’ strata lot. The claim was not made necessary by the strata corporation’s deductible, but because the owners were responsible for repairing that part of their strata lot.
In the court’s view, the owners were claiming under their policy for loss or damage caused by “. . . water escape, rupture, freezing . . .” Since the deductible for this type of claim was $500, the owners had to pay that portion of the loss or damage. The court ordered the owners to pay the $500 deductible amount directly to the strata corporation. After subtracting the deductible from the $1,287.80 claim, the court found Wawanesa liable for the $787.80 balance of the loss. The court ordered Wawanesa, on behalf of the owners, to pay the $787.80 to the strata corporation.
The court also considered whether the fact that the strata corporation was required to insure for fixtures changed the nature of the owners’ coverage under their Wawanesa policy. Section 161 of the Strata Property Act specifically permits an owner to insure fixtures within, and for damage to, a strata lot that is not covered by the strata corporation’s policy. For example, the Act at section 161(1)(a) expressly permits an owner to insure perils not covered by the strata corporation’s insurance, and for amounts that are in excess of amounts insured by the strata corporation. Since the strata corporation’s policy did not cover this damage to the owners’ strata lot, the court regarded the Wawanesa policy as the owners’ coverage for an amount “in excess” of the corporation’s coverage.
When Wawanesa appealed to the Supreme Court of British Columbia against the Provincial Court of British Columbia judgment, the Supreme Court of British Columbia confirmed Wawanesa’s’ liability.
Insurance is a complex subject. If a strata corporation has inadequate insurance, the corporation and its owners may be exposed to enormous losses. Recall that a strata council member must exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. When arranging or reviewing a strata corporation’s insurance, a strata council should always consult an insurance advisor.
- Strata Property Regulation, s. 9.1(1) (definition of “fixtures”). ↩
- Strata Property Act, s. 150(1) and Strata Property Regulation, s. 17.4. If a strata corporation was created before July 1, 2000, when the Strata Property Act came into force, the corporation did not have to comply with this requirement until January 1, 2002. ↩
- Strata Property Act, s. 152. ↩
- Strata Property Act, ss. 15, 149 and 150. ↩
- Strata Property Act, ss. 15, 149(1). Section 15 of the Strata Property Act requires the developer to ensure that the strata corporation’s insurance coverage extends “at least four weeks” beyond the date of the anticipated first annual general meeting. The Interpretation Act, however, requires that we calculate this four-week period by excluding the first and last days of the period. When Section 15 of the Strata Property Act and Section 25 of the Interpretation Act are read together, this means the developer must ensure that insurance coverage extends for at least 30 days after the anticipated date of the first annual general meeting. For example, if we anticipate that the first annual general meeting will be held on the first day of the month, that day must not count as part of the four-week period because the corporation must exclude the first day. Instead, the strata corporation looks to the next day, being the second day of the month, and then adds four weeks (being 28 days) from that date, for a total of 29 days. Since the Interpretation Act also requires us to exclude the last day, we must exclude the 29th day and add one more day, for a total of 30 days. In this example, the insurance coverage must extend until at least the 31st of the month, (being 30 days after the 1st of the month). ↩
- Strata Property Act, s. 1(1) (definition of “common expense”). ↩
- See, for example, ↩ .
- Strata Property Act, s. 153. ↩
- Economical Mutual Insurance Co. v. Aviva Insurance Co. of Canada. ↩
- Strata Property Act, s. 155. ↩
- Strata Property Act, ss. 20(2)(a)(iii) and 35(2)(g); Strata Property Regulation, ss. 4.1(4), (7)(b). ↩
- Strata Property Act, s. 35(2)(g) and Strata Property Regulation, s. 4.1(4). ↩
- Strata Property Act, s. 36(1). ↩
- Strata Property Act, s. 36(1),(3). According to section 36(3) of the Strata Property Act a strata corporation must comply with the request, “within 2 weeks.” When calculating this 2-week period, section 25(5) of the Interpretation Act, R.S.B.C. 1996, c. 238 requires that we exclude the first day and include the last day of the 2-week period. Reading together section 36(3) of the Strata Property Act and section 25(5) of the Interpretation Act, “within 2 weeks” translates into 15 days. ↩
- Strata Property Act, ss. 149(1)(d) and 149(2). ↩
- Strata Property Regulation, s. 9.1. ↩
- Wawanesa Mutual Insurance Co. v. Kieran et al., aff’g Strata Plan KAS 1019 v. Kieran, Simkus and Wawanesa. ↩
- Strata Property Act, s. 149(3). ↩
- Strata Property Act, s. 149(4)(a), (b) and Strata Property Regulation, s. 9.1(2) (definition of “major perils”). ↩
- Strata Property Act, s. 152. ↩
- Section 159(1) of the Strata Property Act says, in part, that the strata corporation may pass the resolution not to repair or replace the damaged property at a general meeting held no later than “60 days” after receipt of the insurance money. The Interpretation Act, however, requires that we calculate this 60-day period by excluding the first day of the period of time, and including the last day. When Section 159(1) of the Strata Property Act and Section 25(5) of the Interpretation Act are read together, it means the general meeting must be held 61 days from and including the date the money is received. ↩
- Strata Property Act, ss. 157; 159(1), (2). ↩
- Strata Property Act, ss. 149(1)(c),(d) and 149(3). ↩
- Strata Property Act, s. 154(a). ↩
- Strata Property Act, s. 154(b). ↩
- University of Calgary, Haskayne School of Business, “Glossary of Risk Management & Insurance Terms”, online: Haskayne School of Business Homepage, <http://www.haskayne.
ucalgary.ca/programs/undergrad/bcomm/rmin/glossary/glossary_c.html> (date last modified unknown). ↩
- Strata Property Regulation, s. 9.1(2) (definition of “major perils”). ↩
- Insurance Bureau of Canada, “The language of Insurance Translated” online: Insurance Bureau of Canada-Need More Info page, <http://www.ibc.ca/en/Need_More_Info/Glossary/
D.asp> (date last modified unknown). ↩
- Strata Property Act, s. 158(1). ↩
- Strata Property Act, s. 158(3). ↩
- Mari v. Strata Plan LMS 2835 at paras 3-5. ↩
- Mari v. Strata Plan LMS 2835. ↩
- The Reasons for Judgment refer to this appliance as a washer. In this book, the author assumes that a washer is a washing machine for laundry. ↩
- Land Title and Survey Authority of British Columbia, Land Title Office New Westminster/Vancouver, Form 9 (Notification of Change of Bylaws) of The Owners, Strata Plan No. LMS 2835, Land Title Office Document No. BL431724 (Filed 23 December 1997) at 11. ↩
- Strata Property Act, s. 155. ↩
- The Owners, Strata Corporation VR 2673 v. Comissiona et al.; Condominium Act, R.S.B.C. 1996, c. 64, s. 54. ↩
- Insurance Act, R.S.B.C. 1996, c. 226, s. 126, Statutory Conditions 1, 4, 12 and 14. ↩
- A material misrepresentation is a representation which, had the insurer known about it, would have caused the insurer to decline coverage, add an exclusion or charge a higher premium. For example, misrepresenting your previous claims history would be considered material. ↩
- Strata Property Regulation, s. 9.2. ↩
- Strata Property Regulation, s. 17.4. ↩
- Strata Property Act, s. 155. ↩
- Insurance Bureau of Canada, “Protecting Yourself From Liabilities Of Others”, pamphlet, online: Insurance Bureau of Canada ↩ (date accessed 14 June 2010).
- Strata Property Act, s. 151. ↩
- Business Corporations Act, S.B.C. 2002, c. 57, s. 142(1); Cooperative Association Act, S.B.C. 1999, c. 28 , s. 84(1); and Society Act, R.S.B.C. 1996, c. 433, s. 25. ↩
- Strata Property Act, s. 31. For information about a strata council member’s standard of care, see Chapter 7, Strata Council. ↩
- Strata Property Act, ss. 4 and 26. See, for example, McGowan v. The Owners, Strata Plan NW 1018 at para 70. ↩
- Dockside Brewing Co. v. Strata Plan LMS 3837, aff’d , leave to appeal dismissed without reasons, . ↩
- Strata Property Act, ss. 32–33. For information about a strata council member’s duty to disclose conflicts of interest, see Chapter 7, Strata Council. Dockside Brewing Co. v. Strata Plan LMS 3837, at para 65. ↩
- Dockside Brewing Co. v. Strata Plan LMS 3837, at para 84, aff’d , leave to appeal dismissed without reasons, . ↩
- University of Calgary, Haskayne School of Business, “Glossary of Risk Management & Insurance Terms”, online: Haskayne School of Business Homepage, <http://www.ibc.ca/en/business_insurance/> (date last modified 11/20/2006) at 10. ↩ > (date last modified unknown). See also Alberta Voluntary Sector Insurance Council, “Insurance Toolkit for the Voluntary Sector” online: Insurance Bureau of Canada-Business Insurance page, <
- For more information about sections, see Chapter 10, Sections. ↩
- Strata Property Act, s. 194(4). ↩
- For more information about air space strata plans, see Chapter 4, Strata Plan Types, Styles and Uses. ↩
- The term “insurable interest” is briefly explained at the beginning of this chapter. ↩
- For information about the role of a strata property manager, see Chapter 9, Strata Managers. ↩
- Real Estate Services Act, S.B.C. 2004, c. 42. The Act at s. 1(1) defines the term remuneration to include any form of remuneration including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly. ↩
- Real Estate Services Act, s. 104. ↩
- Real Estate Services Act, s. 102. ↩
- Real Estate Services Act, s. 1 (definition of “special compensation fund”). ↩
- Real Estate Services Act, s. 60 (definition of “compensable loss”). ↩
- Real Estate Services Act, ss. 60-72. ↩
- Real Estate Services Act, ss. 61(2), 62(1), 63, 64. ↩
- Real Estate Services Act, s. 69 and Real Estate Services Regulation, B.C. Reg. 506/2004, s. 5.1. ↩
- Real Estate Services Act, ss. 69, 70(1) and Real Estate Services Regulation, s. 5.2. ↩
- Strata Property Act, s. 155. ↩
- See, for example, Economical Mutual Insurance Co. v. Aviva Insurance Co. of Canada. ↩
- Strata Property Regulation, s. 9.1(1). Recall that the regulations define “fixtures” to mean items attached to a building, including floor and wall coverings and electrical and plumbing fixtures, but does not include, if they can be removed without damage to the building, refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items. ↩
- Strata Property Act, s. 161(1)(a),(b),(c). ↩
- Strata Property Act, s. 161(1). ↩
- Strata Property Act, s. 161(2). ↩
- For information about an owner’s liability to pay the deductible portion of a claim on the strata corporation’s insurance policy, see “Who Ultimately Pays the Deductible” in “The Strata Corporation’s Insurance” earlier in this chapter. ↩
- See generally ↩ at para 4.
- For information about repairs, see Chapter 25, Carrying Out Repairs and Chapter 26, Paying For Repairs. ↩
- Strata Plan KAS 1019 v. Kieran, Simkus and Wawanesa. ↩ , aff’g
- Strata Property Act, Schedule of Standard Bylaws, s. 8(d). For information about the way the Standard Bylaws regulate repairs, see Chapter 25, Carrying Out Repairs. ↩
- Strata Property Act, s. 149. ↩
- Strata Property Regulation, s. 9.1(1). The definition of fixtures does not include, if they can be removed without damage to the building, refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items. For more information, see “Property Insurance” earlier in this chapter. ↩
- An owner’s liability to pay the deductible portion of a claim on the strata corporation’s insurance policy is explained in “Who Ultimately Pays the Deductible?” earlier in this chapter. ↩