With any new home purchase there is a lot of excitement. There is also a pretty lengthy list of things to do. This list will include setting up utilities, informing friends, family and vendors of your address change, packing and moving in, and in the case of a condominium purchase; setting up your monthly condo fee payments. Often lost in all this excitement is making sure your new home is properly insured. You could be forgiven for overlooking this detail. Afterall, insurance is not the most exciting subject. However, it is vitally important that you make sure that your insurance coverage is sufficient to protect you when you need to rely on it. Particularly in a condominium.

Corporation Policy

I am often showing condominiums to potential buyers when a client looks at the condo fees and points out that “the condo fee includes insurance… it says so on the listing”. While that may be true that the condo fee includes insurance, it is generally not the insurance that the client had in mind. Most buyers assume that the insurance in question is designed to cover their unit. In fact, the insurance that is covered by the condo fee is the “Global” policy for the corporation itself.

From a loss and liability standpoint this corporation policy is designed to protect the common assets of the corporation. This would include all of the common property and depending on the development or building would include the parking lots, parkades, lobbies, roof, siding, elevators, hallways, etc. Essentially, everything that falls outside the boundary of the individual condo units would be covered under the global policy. This would extend to liability as well. Therefore, if a visitor to the building were to slip and fall on common property, the global policy would be in place to cover any liability.

This policy is maintained and paid for by the condominium corporation as part of it’s operating budget. Since condo fees make up the largest, or only, source of revenue for most corporations, it is in fact the condo fees paid by each unit owner that pay for this insurance.

Personal Policy

The global policy for the corporation is not intended to protect the contents of the individual condominium units. The owner of each unit will be required to have their own policy to protect against any gaps in coverage. To put it another way, if you took your condo and shook it upside down, whatever fell out would not be insured by your condo fees.

Condo owners will require a personal insurance policy to cover their personal property as well as many of the “fixed assets” of the unit. Damage to taps, cabinets, counter tops, light fixtures and flooring, depending on how the loss occurred, can be covered by the global condo policy but the replacement cost and level of finishing is pre-determined by the corporation.

The owner owns whatever improvements and betterments have been made to the condo and the personal insurance should cover those replacement costs. If there was a fire in the building, for example, the global policy would replace everything back to the standard determined in the condominium documents. This would be unlikely to include any improvements, betterments, or renovations.

Assessing Liability to the Unit Owner

If a loss occurs as a result of negligence on behalf of the unit owner, the condo corporation would be the first responder to the claim, but the owner can be held responsible.

I am aware of several instances in which this has occurred. In one case it was determined that a unit owner was tampering with a sprinkler head for the fire suppression system inside their unit. This tampering resulted in a significant discharge or water which flooded the owner’s unit and several units below. The condominium Board charged the $50,000 deductible for the water loss claim back to that unit owner who was required to pay it.

Raising Deductibles and Insurance Costs

Recently CTV News in Calgary ran a story about the raising costs of condo insurance. The subject property in the article was a 200 unit corporation is SE Calgary in which the cost of the global policy for the corporation rose from around $70,000 per year to $325,000 per year. The result of this increase would be a $1,000 increase to condo owners every year. That equites to roughly $85.00 per month.

The company responsible for the insurance coverage, and rate increase, noted that “residential real estate in Canada, and more specifically condominiums, is the single most challenging class of business in the insurance industry today”. The company said losses from water damage, fire and catastrophic weather events have gone up while replacement costs continued to rise. As such, the insurers have now responded with rate corrections and other potential corrective measures such as increased deductibles.

Increased deductibles have been a popular industry reaction for several years. In one instance a relatively new building had experience three major water loss events inside it’s first year of residency. With no notice of a policy change in advance, when their insurance coverage came due, the insurer raised the deductible from $50,000 to $500,000 per occurrence for future water loss events. While this increase seems unfair and unreasonable CTV noted in it’s story that “according to the Insurance Bureau of Canada, it’s up to the individual insurance company to determine what risks they are willing to take on. ‘There are many insurance companies across Canada and every insurance company has their own risk appetite and makes individual business decisions on the types of properties that they want to insure and the risks that they’re willing to take on,’ said Rob De Pruis, director of consumer and industry relations.”

In the case noted above, the condo Board and condo manager were able to negotiate an extension and were then able to bind coverage with another large insurance entity with a policy that matched the previous policy. This brought the deductible down to a more reasonable level.

Protecting Yourself

It is important to remember when purchasing a condominium as a new home that there will be two insurance polices in place to protect you. One will be the global policy for the condo corporation, paid out of your condo fees. The other will be the personal insurance policy for your unit. While it may sound good to have “twice the coverage” it is important to work with a competent insurance professional. This will ensure that you and your home are properly covered with no gaps or exposure. Afterall, you are paying two sets of premiums and should not be at a loss.

If you currently sit on a condo Board or are considering doing so in the future, you will need to be aware of the changing landscape of insurance. With an increased frequency and severity of insurance claims, the companies that provide insurance are looking for way to minimize their own risk by passing some of that onto their customers. As with anything, do your homework and research your options. Having a competent insurance professional in your corner can go a long way to ensuring that your best interests are being protected.