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Condo Coverage


November 30, 2014   by Insurance Institute of Canada


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Condo insurance is not a new product, but its usage is increasing. According to the National Household Survey from Statistics Canada, one in eight households were living in condos by 2011. Condo dwellers don’t always fully understand the claims and coverage issues they may face, and adjusters may find themselves needing to explain some nuances.

Condo owners often misunderstand the boundaries between their own policy coverage on their specific unit and the condo corporation’s policy coverage. This is particularly true in cases where the condo owner’s actions cause damage. When handling a claim from a condo unit owner, an adjuster may discover that the owner is actually under-insured in one or more coverage categories.

Basic concepts

Condominiums are developments where there is individual ownership of units (or strata units in some provinces) and group ownership of common property (the lobby, elevators, parking garage, etc.) through a condominium corporation. Condo corporations are governed by a board of directors made up of unit owners. Most condo boards contract out the day-to-day running of the corporation to a property management company.

Condominium corporations are required to carry insurance on the common property elements – basically commercial property and casualty policies. Condo unit owners pay for the condo corporation’s costs (including the costs of insurance) through maintenance fees.

Individual unit owners can also take out personal insurance to cover specified losses they incur as a result of owning their unit, as well as liability coverage in case they are sued for damage they cause.

This article focuses on condo owners’ property coverage. For the purposes of the article, “condo owner” includes any condo dweller, regardless of whether they own or rent the unit. “Condo insurance” refers to insurance on an individual condo (or strata) unit. “Condo corporation insurance” refers to insurance taken out by the condominium corporation.

Coverage categories

To determine whether a condo owner has coverage for a particular claim, an adjuster needs to consider both the unit owner’s coverage and the condo corporation’s coverage.

A typical condo owner’s policy should provide several types of property coverage:

• personal property

• additional living expenses

• improvement and betterment protection

• loss assessment protection

• unit additional protection

Personal property: As with any property policy, the condo owner’s coverage should reflect the value of the personal property and may be based either on the replacement cost or on the cost less depreciation. There may be sub-limits for particular items, and condo owners don’t always understand how they work. For example, if the policy limits claims for bikes to $1,000 per bike and the condo owner’s $5,000 racing bike is stolen, the owner may be surprised to discover that the insurer will pay out only $1,000 (or less if there’s a deductible).

Another example is a sub-limit on works of art and antiques, which may be a specific percentage of the total coverage for personal property or a per-item amount, whichever is lower. It’s not unusual for the specified percentage to work out to quite a lot less than the per-item amount.

Additional living expenses: A condo unit may be unfit for occupancy after a loss, and the owner may need to move out during repairs. If the unit owner’s insurance coverage includes additional living expenses, this will cover costs like rent and utilities that the owner incurs during the repair period. But the extent of the coverage for additional living expenses varies widely. Although some policies provide unlimited additional living expenses, many policies limit this coverage to a fixed percent of the personal property coverage. In areas where rents are high and vacancy rates are low, some owners may find themselves under-insured in this category.

Improvement and betterment protection: This coverage provides for replacement of improvements the unit owner made to things like kitchen cabinetry, flooring, and fixtures. Many condo owners fail to realize that if a loss is covered by the condo corporation’s insurance, that policy will normally cover only the costs of bringing the unit back up to the specifications of the standard unit.

The standard unit is defined by reference either to the condo corporation’s declaration, to its by-laws, or to governing provincial law. Many condo corporations have adopted by-laws that define a standard unit as a fairly bare-bones shell that includes only things like the pipes, wires, cables, ducts and mechanical apparatus (such as heating and air-conditioning installations). Others go further and include some finishes, such as basic carpeting, closet shelving, and kitchen cabinets installed by the builder.

Any betterments or improvements beyond the basic finishes – for example, tile or wood flooring, granite or other custom counters, blinds, lighting fixtures, etc. – typically are not included in the definition of a standard unit. So, if a condo owner does not have their own coverage for any changes and improvements made to their unit, they can end up out of pocket for the additional costs to repair or restore these features.

Loss assessment protection: This coverage protects a unit owner if the owner faces an assessment levied by the condo corporation – for example, if the corporation issues a special assessment to all owners to cover a loss to the common areas, or if the corporation issues an assessment to the individual owner following a loss the owner caused. Special assessments are becoming more common in some areas as buildings age or construction defects lead to expensive repairs.

Loss assessment coverage typically also includes coverage, up to a sub-limit, of the amount of deductible the corporation paid under its policy following a loss caused by the condo owner. This coverage is sometimes informally referred to as “chargeback of deductible.” Here, too, an adjuster may discover that the condo owner has less coverage than he or she thought. Some condo corporations have opted for very high deductibles that may exceed a unit owner’s loss assessment coverage. Unit owners may not realize that they need to check the corporation’s insurance certificate every year to verify the current deductible.

Unit additional protection: This coverage responds if the unit owner suffers a loss and the condo corporation doesn’t have insurance, or if the corporation’s insurance is inadequate or ineffective. This coverage may become more significant in future as condo corporations continue to look for ways to reduce their insurance costs. A large loss that severely damages many units plus building infrastructure might exceed a corporation’s scaled-back coverage, leaving condo unit owners on the hook unless they have this coverage.

In the next issue of Claims Canada, we’ll look at two scenarios in which an adjuster might need to deliver difficult news to a condo owner making a property claim.

This article is based on excerpts from ADVANTAGE Monthly, a series of topical papers on emerging trends and issues provided to members of the Chartered Insurance Professionals’ (CIP) Society. The CIP Society is the professional organization representing more than 15,000 graduates of the Insurance Institute’s Fellow Chartered Insurance Professional (FCIP) and Chartered Insurance Professional (CIP) programs.


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