Year in Review: Strata insurance
Dec. 17 |Trudy Lancelyn
B.C. currently has about 490,000 strata lots in 29,000 strata corporations, housing more than one million residents or almost 25% of the province's 4.6 million residents. The issues can be divided into what's been done, and what's still outstanding.
What's been done:
New regulations were passed that require strata corporations to obtain reserve-fund studies that outline the anticipated maintenance, repair and replacement costs for common expenses projected over 30 years, and that offer at least three funding models for those projected costs. About 22,000 of B.C.'s 29,000 strata corporations will be required to undertake these studies before the end of 2013 and then every three years thereafter. Practitioners conducting these studies are required to have E&O insurance. It is hoped that over the long term strata owners will become more proactive about funding and undertaking major repairs and upgrades to their properties.
Recognizing that community-based ownership requires group decisions and creates challenges for resolving disputes, the provincial government passed the Civil Resolution Tribunal Act, which provides for an alternative dispute resolution mechanism for strata owners. Once established (estimated to be in 2014), the Civil Resolution Tribunal will make information and resources available online to owners to encourage the prevention and self-resolution of disputes. Parties to a dispute about, for example, how a building or unit policy did or didn't respond to a claim would find the dispute resolution provisions in the Insurance Act more relevant to effect resolution; however, the resolution tools provided under the Civil Resolution Tribunal Act could be effective for resolving disputes relating to strata bylaws, including those affecting insurance. The Civil Resolution Tribunal will also provide resolution services for small-claims disputes.
There are several aspects of Part 9 of the Strata Property Act that have been identified at various times as problematic and overdue for review, but the handling of deductibles tops the list:
- Some strata buildings, plagued with frequent water damage claims, are seeing their deductibles for these losses increase, with some notable ones reaching six figures.
- Due to court interpretations of the word "responsible" in the Strata Property Act, individual owners of units, where losses originate and impact common property and other units, are finding themselves liable for these large deductibles.
- The Insurance Bureau of Canada has recommended to government that it amend the Strata Property Act to clarify its original intent that these deductibles are common expenses. In the meantime, however, strata corporations are establishing their own clarification to owners by passing bylaws that make owners strictly liable for building deductibles if the loss originates in their unit. By one estimate, the majority of strata corporations now have such bylaws.
- This creates an exposure for individual unit owners that they and their brokers should ensure is adequately covered by their unit policies. There is a lack of consumer understanding about this exposure. Anecdotal evidence suggests that only about half of unit owners have any type of unit coverage, let alone deductible coverage.
- That deductible coverage exposure is all the more serious when you consider the earthquake deductible, which could be several million dollars for a large strata building.
For more information, see the article in the Managing Your Risk section of this website. And, at www.ibc.ca search for a downloadable consumer pamphlet entitled Condominium Insurance in British Columbia.