Canadian Underwriter

Ontario should mandate D&O insurance coverage for condominium management firms: report

September 30, 2013   by Canadian Underwriter

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A report submitted last week to the Ontario government recommends that all condominium management firms in the province be required to be covered by fidelity, professional liability and errors and omissions insurance.

The report — titled Growing Up: Ontario’s Condominium Communities Enter a New Era — is the result of the second stage of the review of the province’s condominium laws. Published Sept. 24, the Stage 2 report was based on input from five working groups established last March.

“The condo management working group unanimously recommends that any company managing a condo in Ontario should be insured, as should any individual employed as a condo manager, or should be disqualified from working in the field,” according to the report.

“The Licensing Office of the proposed the Condo Office administrative authority should require proof of coverage as part of the licensing requirements for condo managers and for certificates of authorization,” according to the report. “The Licensing Office, in consultation with insurers, would determine the amount of coverage required.”

The working groups proposed that a Condo Office be mandated to license condominium managers and be funded by levies on each condo unit in the province.

The province plans to conduct a third stage of its review of the condominium laws this fall. The purpose of the review is “to see that it reflects the current and future needs of condo owners, residents and other stakeholders,” according to an announcement on the Ministry of Consumer Services website.

“Government officials will then draw on the stage two solutions report, the results of the residents panel meeting and discussion summaries from the working groups to draft an action plan for implementing the recommendations,” the province stated. “Condo residents and other stakeholders will have an opportunity to review the action plan.”

In the Stage 2 report, submitted by the Ottawa-based Public Policy Forum, the working groups noted the existing Condominium Act is “unclear” about who pays a condo corporation’s deductible for damaged property, in the event that an owner’s carelessness or negligence causes damage to common elements or to another unit.

“The Act should provide that an owner is responsible for repair costs or the deductible under the corporation’s insurance policy, whichever is lower, as a result of damage to other units or the common elements caused by an act or omission by the units owner or resident,” according to the Stage 2 report.

The report also says that packages for annual general meetings of elected condominium boards should advise owners to insure themselves against the risk of having to pay a deductible under their corporation’s policy. It also recommends that owners be “promptly notified” of any increases to the corporation’s deductibles and if the board cannot obtain either D&O or E&O insurance.

“Such notices should also explain why the board is unable to obtain directors and officers coverage,” according to the report. “In general, the board should recognize and use the annual meeting package as a valuable educational tool to highlight important information, such as the corporation’s deductible.”

Provincial law should also establish a definition of “standard unit” that would apply to condominium units across Ontario. The province-wide definition should distinguish between components that the corporation decides should be covered by its insurance policy, and “improvements,” such as hardwood floor or carpeting.

“This distinction is important for insurance purposes because the corporation’s insurance covers only standard unit items,” the Stage 2 report states. “The Act currently requires developers to include in the transfer documents a schedule setting out what constitutes a standard unit for each class of unit in a condo property. But such definitions can fall short in various ways, creating uncertainty and tension over insurance coverage.”