Real Estate

Affordability of condo corporation insurance a growing crisis

By AdvocateDaily.com Staff

A growing number of condo corporations are struggling to get reasonable insurance coverage, says Toronto condominium lawyer Armand Conant.

“It’s a mammoth problem,” says Conant, a partner with Shibley Righton LLP. “In light of the number of claims being made by condo corporations, insurers appear to want to get out of the industry.”

Since its inception, Ontario’s Condominium Act has required a condo corporation to “obtain and maintain insurance on its own behalf and on behalf of the owners, for damage to the units and common elements that is caused by major perils” or other circumstances identified in the corporation's declaration and bylaws.

According to the Act, those major perils include fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism, or malicious acts.

Although the legislation makes no mention of the availability of coverage, it does specify that the coverage level must be high enough to meet the replacement cost of damaged property.

“Since the 1960s, condos have been able to obtain insurance. If they’ve had frequent claims, then their premiums and deductibles usually go up,” Conant tells AdvocateDaily.com.

But in the last two years, he says industry watchers have noticed a large spike in premiums and deductibles, leading to the suspicion that insurers are trying to get out of the business.

One of his clients was forced to make three substantial claims following flood damage, two of which the condo board believes resulted from faulty construction by the developer.

While the claims went smoothly, the insurer informed the corporation that it would not renew its coverage when the policy expired.

“They were scrambling around, trying to find insurance,” Conant says, explaining that the board only managed to obtain new coverage in the nick of time through its broker by cobbling together a consortium of insurers prepared to take on the risk of further claims.

“It got down to the last day before the existing policy was to expire, and it was only possible through the work of many people,” he says.

But the board’s relief at getting some coverage in place was tempered by the terms of the deal, which saw their deductible for flood damage jump to $500,000, while the deductible for all other claims rose to $350,000. In addition, the corporation’s annual premium more than tripled from $65,000 to roughly $225,000.

“Outside of a catastrophic event, they’re essentially paying $225,000 for the privilege of not being insured because almost all of the claims will come in under the deductible,” Conant says.

And this client is not alone, he says, adding that he’s heard of one corporation that has a $1-million deductible.

“We’ve seen case after case like this, and we believe it is on the rise. In addition, we are aware of at least three or four condo corporations who cannot get insurance at any price, at any deductible, which means the owners are left with no insurance on their building,” Conant says. “If they can get it, then the owner can’t buy adequate unit insurance to cover the corporation’s large deductible, thus exposing themselves to liability and maybe, in the most extreme cases, even losing their home.

“It’s a hot topic in the industry.”

Conant says stakeholders, such as the Toronto chapter of the Canadian Condominium Institute (CCI), have approached the government to make it aware of the growing crisis, and are also offering assistance in trying to find solutions. He says the CCI is holding a symposium on the issue on Nov. 9 at the Delta Hotel Toronto. For more information, contact info@cci.ca.

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