January 31, 2015 by Insurance Institute of Canada |Insurance Institute of Canada
In the last issue of Claims Canada, we looked at the coverage categories in a typical condo owner’s property policy. In this issue, we run through two examples of situations where an owner might end up out-of-pocket because they didn’t understand the nature of their coverage.
In the first of our two sample situations, a unit owner’s action causes damage to the owner’s own unit, to an adjoining unit, and to the condo common elements. In the second situation, a condo building suffers major damage that affects multiple unit owners. Although both scenarios have been simplified to focus on selected coverage issues, they illustrate the interrelationship between the unit owner’s insurance coverage and the condo corporation’s coverage. They also reinforce the importance, for adjusters, of carefully reviewing all applicable in-force policies at the time of a claim in order to evaluate coverages and possible liabilities.
Unit owner causes damage
Mr. A owns a unit in a multi-storey condo building. He has lived there five years and is the second owner of the unit. One morning, just before he leaves for work, he starts the dishwasher. When he comes home that night, he finds large fans outside his unit and notices the carpet in front of his door is soggy. Inside, his hardwood flooring is warped from water and there are puddles in the kitchen near the base of the broken dishwasher. He then sees a note on the counter from the property management company saying they had entered the unit and shut the water off, but only after his neighbour downstairs heard dripping.
Mr. A contacts his broker to explain what happened and to get help determining whether or not to make a claim against his all-risks policy.
Mr. A has a $1,000 deductible. Unusually, he does not have loss assessment coverage. His broker explains that damage to his unit would be covered under his policy, subject to the $1,000 deductible. She also mentions that he would likely be on the hook for any damage to the hallway and the unit below him. He is surprised by this, because he assumed the condo corporation’s policy would cover those areas. Though Mr. A has lived in the building for years, he has never been to an annual general meeting and has never even noticed the certificate of insurance that is included in the AGM package.
Mr. A speaks with the property manager, who confirms that the condo corporation will charge him for either the cost of the repairs or the corporation’s deductible, whichever is less. The property manager assures him that the corporation’s deductible is “only $5,000”, so that would be the most he would be expected to pay.
The property manager’s action during the leak helped limit the damage. But it costs the corporation $1,600 to rent the dryers, clean the hall carpeting, and repair and repaint the ceiling and wall in the unit below Mr. A. As for the damage to Mr. A’s unit, the total cost for replacing the hardwood in the hall and the baseboard in the hall and kitchen comes to $1,400.
When all is said and done, Mr. A has to pay $1,600 to the corporation for the repairs to the other unit and the hallway because he does not have loss assessment coverage. But his insurance does cover $400 of the cost of repairing his unit ($1,400 less the $1,000 deductible).
Again, this scenario has been simplified for illustrative purposes. In practice, a typical condo owner’s policy would include some level of loss assessment coverage. However, the policy might include provisions that reduce the limit of this coverage in specific circumstances, such as for water damage claims.
Severe damage to building
Mr. and Mrs. B own a unit in a loft-style condo in a converted factory. They have a single-limit all-risks policy with personal property coverage of $75,000, improvements and betterments coverage of up to $75,000, additional living expenses of $30,000, unit additional protection of $180,000, and property loss assessment of $180,000.
While Mr. and Mrs. A are away on a three-week vacation, a fire in a nearby vacant warehouse spreads to their building and causes extensive damage to the electrical and mechanical systems. After the fire is put out, the city fire marshal determines that it would be unsafe for residents to return until repairs are made. The city’s emergency assistance team puts the residents up in hotels for the first few nights and advises them to contact their insurers. Two weeks after the fire, the property manager notifies unit owners that it will likely be 10 months before the building will be habitable again.
Mr. and Mrs. B learn about all this on their return from vacation. They phone their broker immediately and then start looking for an apartment. They are surprised to discover that there are not many listings for furnished rentals and that they start at $2,400/month plus utilities.
Given the severe nature of the damage cause to their unit and the entire building, Mr. & Mrs. B will be making a claim for the replacement cost of their personal property as well as for betterments and additional living expenses. Depending on the condo corporation’s coverage, they might even have to make a claim for unit additional protection.
In making their personal property claim, Mr. & Mrs. B will need to meet the usual requirement of demonstrating what they had. If they have up-to-date documentation and photos of their contents, and if that information was stored someplace safe from the fire, this step should be fairly straightforward. The condo insurance will cover finishings up to the standard unit, and then Mr. & Mrs. B’s policy will cover betterments.
If they rent an apartment for $2,400 and pay an additional $150/month for utilities, their $30,000 of additional living expenses will cover them for just over 11 months. The property manager estimates it may take 10 months for the work to be done; but if that timetable is optimistic, Mr. & Mrs. B may run short of coverage for their living expenses.
One other issue that they may be concerned about if they read their policy is the possibility that their additional living expenses might be limited in duration – for example, if the insurer considers this to be a situation where a civil authority has prohibited access to the building or the unit. Such a provision is generally meant to apply in mass emergency situations, though, not to cases where a fire marshal considers a building unsafe.
Depending on the extent of the damage to the building and the extent of the condo corporation’s insurance, Mr. & Mrs. B should be made aware of these potential concerns and of how their coverage for unit additional protection might apply.
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.