Insurance has certainly been a hot topic in the past, but it’s more important today than ever. With the extreme weather events being experienced around the globe like the extreme heat and subsequent wildfires here in BC, Greece & Turkey, and floods in European countries and China, insurance has become an extremely important and vital component of life when disaster strikes.
Overview of Recent Conditions
Since the early 2000’s, California has experienced massive fires almost annually just like in Australia. Could all these natural disasters be due to climate change? Some say yes and some say not entirely. I am not here to argue the point, but to emphasize the importance of having proper and adequate insurance to better your odds against suffering financial losses, in addition to property losses.
As you are aware, these extreme weather events are happening here in Canada with more frequency too. Due to the recent natural disasters, such as the many wildfires over the last 5 years in BC, the huge and devastating wildfire that destroyed a large part of Fort McMurray (~$4 Billion in claims), the massive flooding in Calgary, and destructive hail storms in Canada, many insurance companies lost billions due to large numbers of expensive claims. Many re-insurers got out of the insurance business, which left fewer players in the game. This meant that it became harder to get proper insurance coverage, and property insurance rates have gone through the roof. Even as I write this, there is concern for property owners even getting property insurance in wildfire prone areas in BC. In relation to ensuring your property is “Firesmart” here is a handy and helpful brochure to review.
I am always a bit shocked and quite concerned when I run across condominium owners that don’t have and understand condo insurance. Here is a recent brief article by MoneySense for those that would like a rundown of condos Insurance.
Insurance rates have increased across Canada but not equally across the board, geographically and across the various housing categories. Property owners in BC and Alberta have been seen some of the highest insurance increases, from 20 – 40% increases up to 200-300% increases for extreme cases for specific perils such as water damage. In contrast, Ontario property owners barely experienced double digit increases in their premiums.
Condominium/strata properties have been the hardest hit housing category, to the point that there were demands that the government intervene. The main reasons for BC and Alberta high rates have stood out is because of the high property values in the major cities of BC and damages from major weather event that happened in Alberta. One of the biggest issues is the damage that is caused by water/flooding and it is the one area that insurance coverage has seen the largest increases in deductibles.
One doesn’t need major weather events to realize the importance of having adequate and proper property Insurance. And it is this part of the topic that I wanted to dig deeper into for all real estate investors and property owners. Recently, in speaking with someone at the Insurance Bureau of Canada (IBC), l learned that insurers in the various provinces can treat insurance claims in condominium/strata properties differently. I will share more about this below. In the interim here is an IBC brochure on Condominium/strata property to review.
This is a situation that I learned about how damage caused within in a suite in a strata property in BC, was to be paid for.
Situation back story:
- An automatically timed exterior lawn sprinkler head was somehow redirected so that the water was not being directed to where it should be. It was hitting the exterior of the building.
- All the condo units in this building have built in wall-mounted air conditioner units.
- There is a ground floor suite that has an air conditioner that happened to be on the wall where the water had been hitting the building over a period.
- Additional information revealed that there was caulking around the air conditioner unit that had failed especially underneath the air conditioning unit where the water was repeatedly hitting.
- This combined issue led to water getting in behind the exterior wall and getting into the void between the suite’s wall and the exterior over a prolonged time without any real noticeable difference, until it was not drying out and started weeping under the framing of the interior wall.
- When it was finally noticed the damage required more than sealing up the caulking and drying out the carpet.
- When professionals investigated the issue they determined that the carpet was not salvageable, the drywall below the air conditioner of the damage suite needed to be replaced and it needed remediation of mold within the suite.
- When the property manager obtained quotes for the repair costs, they shared the facts to the strata council that the costs came in below the strata corporation’s deductible.
So who would be responsible for the repair to the suite?
As the damage was caused by a strata related issue, and the cost to remediate the damage was less than the strata corp.’s insurance deductible, one would logically think that the strata corp. would be responsible for the paying for the repair. That would be incorrect according to how these types of situations are handled in BC under the Strata Property Act.
According to Condominium Home Owners Association of BC (CHOA) and the bylaws, the suite owner is responsible for the repair. The responsible for the repair falls on the owner should and not the offender in this case. In fact, there is a bulletin on the specifics of responsibility of repairs. While this bulletin is not an absolute, it does provide the context to understand that if there is a lack of specificity in the strata bylaws there are rules under the Strata Property Act of BC that the owner of the strata unit is responsible for the repairs. Had the repair due to the water damage cost more than the deductible, the Strata Insurance may be employed although many Strata corporations are reluctant to claim due to the increases in premiums for water claims.
This was certainly an eye opener for me and prompted me to investigate all my properties to ensure that I better understood where the responsibilities lay for repairs.
In the end, the cost of the repairs could have been paid for by the individual owner’s property insurance or personal funds. In order to decide how to fund the repair, the property owner needs to know if he going to experience a premium rate increase in his insurance policy and for how long if he uses his insurance for the repair in comparison to the actual out of pocket costs. The answer is not always cut and dry and it is best to consult the insurance broker or provider before finalizing that repair funding decision.
7 Important Lessons Learned as a Condo/Strata Property Owner
- Obtain and review a copy of the condominium/strata insurance premiums and coverages to better understand what your personal insurance coverages are and how they would work in relation to the condominium/strata corporation insurance.
- Obtain a copy of the Strata Property Act (only BC) or Condominium Property Act in the province in which you own properties to ensure that you understand how damages may be handled in each province/jurisdiction.
- Obtain and review a copy of the condominium/strata bylaws to better understand what party is responsible for damage and how damage and claims are to be handled.
- Communicate with your property manager, rental manager (if applicable) and insurer with any questions you may have to ensure that you fully understand what coverages you have and what is needed.
- Read your insurance policy including the fine print.
- If you are a landlord, it is critical to ensure that you have all the necessary coverages:
- Rental interruption insurance (up to 18 months of rental loss)
- Betterments and improvement (any upgrades you have made)
- Third party Liability insurance (minimum 1 million preferable 2 million)
- Condominium/Strata Deductible Coverage (to match the condominium/strata corporations’ deductibles especially for water damage)
- Speak to more than one insurance broker to get and stay informed and get more than one quote for the appropriate coverage.
I urge you to review your property insurance and consult your insurance agent to determine if you have proper and adequate insurance for your property(s).
In closing, if you are a landlord, please speak to your insurance company, rental manager, and tenant to work out a solution to ensure that your tenant also has insurance for their personal affects and unintended damage to your condo/strata unit or the entire property.