One thing to keep in mind is whether the corporation’s policy is insuring improvements or betterments. The declaration, by-laws or plan should clearly define this responsibility so that the corporation and unit owners both know what is expected of them. In most parts of Canada, it is normal for unit owners to insure any improvements or betterments made since construction or conversion, but in southern Alberta, for example, it is more common for the condominium corporation to pick up this exposure. The corporation can probably insure this property more easily and less expensively. However, knowing what improvements have been made in each unit of a large complex can be a challenging endeavour indeed, yet knowing is necessary to calculate an accurate replacement cost figure for the buildings.

Insurance against bodily injury and property damage liability

Corporations must also insure against bodily injury and property damage losses. Typically this is done by purchasing a commercial general liability policy. This coverage protects against injuries or damage caused to third parties on the property or in the common areas. It does not replace insurance for the unit owners’ own personal liability, however. Two million dollar coverage has become the new baseline coverage for most corporations these days, and it is not uncommon to see limits of $10 million and more on very large ones.

To help understand how much liability insurance is needed, consider the following:

• The larger the complex, the bigger the exposure. If neglect to repair a water main results in 30 units being flooded, the loss to unit owners’ belongings could be very large.
• The nature of the common property. Complexes with parking garages, recreational equipment, exercise facilities, swimming pools, and such have more potential for situations that could attract lawsuits.
• The climate. Areas of Canada that experience large amounts of snow and extended freezing weather have a greater exposure to slip-and-fall claims.

Some provinces have provision for so-called bare land condos or vacant land condos, which are essentially situations where the unit owners have full control over their buildings. In these cases, some provinces allow the unit owners to secure their own insurance on the units if the by-laws or declaration are amended to permit it. Generally the condominium corporation may still insure the buildings if it prefers. (It may be able to attract better terms given that it is buying insurance in bulk, for example.)

Directors’ and officers’ liability insurance

Another exposure that is worth attention is directors’ and officers’ liability. While it is up to each complex’s board of directors to decide if it wants such coverage (to my knowledge, no province currently requires it), it is well worth considering. Directors are legally liable for their failings while performing their duties; since few directors are paid by their condominium corporations to be on the board, and it is often very difficult to attract new directors, having insurance coverage in place makes it safer for people to choose to serve.

Directors and officers (for convenience I will refer to directors only, but continue to mean both) have a fiduciary responsibility toward the owners of the units; that is, they must look out completely for the interests of someone else (the corporation) because of their position. This requires directors to act faithfully, loyally and honestly, and if they don’t, they are strictly liable for the consequences of their failures – they would be considered to be automatically responsible and the onus of proof would be on them to show that they were not. Other duties also exist for directors; for example, condominium acts often have specific provisions of what directors must do.

Thankfully, the courts have been reasonable about applying these duties. Directors are only required to exhibit the skill they have as a person of their knowledge and expertise. They are not expected to know what an engineer or doctor or lawyer would know, unless they were themselves one. (They may be expected to get professional advice when it is reasonably clear that it is necessary, though.) Directors typically are not responsible for mere errors of judgment, nor are they required to give continuous attention to the affairs of the corporation, but they are expected to act in the interests of the corporation as a whole at all times while acting in their role.

Directors cannot be insured against intentional or illegal activity (for obvious public policy reasons). Also, while directors have a duty to adequately insure the corporation, failure to honour that duty cannot be claimed against directors’ and officers’ liability insurance.

Deductibles

One thing often overlooked in insurance is the deductible. Simply put, this is the portion that the insurance buyer must pay before the insurer will contribute to a loss. As values have increased, deductibles have increased as well. However, I notice many clients who have deductibles that are inappropriately low given the value of their buildings.

In many cases unit owners can be required to pay deductibles in certain circumstances (although a by-law or declaration change may be needed). If a corporation chooses to do this, care must be taken to ensure that the building deductible is not so high that it becomes a burden to unit owners. It is important to advise unit owners of the deductible so that they can check their unit owner policies to see if there is coverage to buy the deductible down to one they can more reasonably afford. (Some very large complexes can have deductibles of $10 thousand, $25 thousand, $50 thousand or even higher.)

Find out what savings can be realized by taking a higher deductible. A good insurance broker can be a great help in finding a deductible that is a reasonable compromise between good coverage and low premium.

Choose your source carefully

Finally, don’t forget to consider where you are buying your insurance. Some markets are friendlier to condominium business than others. Some brokers and agents understand condominiums better than others. Dealing with providers that understand the unique needs of condominiums can go a long way to making for a better experience.

Jim MacKenzie is an insurance broker at Dusyk & Barlow Insurance Brokers Ltd. in Regina, Saskatchewan, as well as a lecturer in business administration at the Paul J. Hill School of Business at the University of Regina.  He is also national Vice-President and President-Elect of the Canadian Condominium Institute. He can be reached by email at jim@dusykbarlow.sk.ca or by telephone at 306-791-9464.