In a Condo, Who Pays for Water Damage?

In condominiums, water damage often has serious consequences. Imagine a water heater leaking or a washing machine overflowing on the fourth floor, causing damage to the lower floors. In such cases, who pays for what?

“Things are always complicated in condos because two insurance policies come into play,” says Line Crevier, spokesperson for the Insurance Bureau of Canada (IBC).

After an incident, both the condominium association’s insurance and the individual condo owner’s insurance are involved. The primary insurance policy covering the building is that of the condominium association. This policy covers the common areas of the building as well as the private portions of each condo owner (such as original walls, flooring, and other components that were part of the condo when it was delivered by the developer).

On the other hand, condo owners must insure their personal belongings, their civil liability, and any improvements made to their private unit.

Water damage is the most frequent type of claim, according to Ms. Crevier. In about 60% of cases, the issues originate from external sources (e.g., water infiltration through the roof or windows, sewer backups, etc.), while in 40% of cases, the water damage comes from internal sources (e.g., leaking faucets, defective water heaters, etc.).

“If the condominium building is not adequately insured or if the deductible is very high, this will impact all the condo owners, who will have to make up the difference,” she points out.

Insufficient Insurance Coverage

The legal obligation to insure the entire building for an amount corresponding to its replacement value is poorly understood, laments André Delage, president of the Quebec Association of Condominium Managers and Owners (RGCQ). For example, if a major disaster occurs and a building valued at $4 million is only insured for $3.5 million, the difference will have to be covered by the condo owners.

The only truly reliable way to estimate this value is to hire a certified appraiser, he insists. “This involves costs, but condo owners can be certain that the building is insured for its full value.”

For those who find that their condominium association’s insurance is insufficient and cannot convince the administrators to obtain adequate coverage, it is advisable to ask their personal insurer to add a complementary guarantee to their personal insurance policy to cover this type of risk, notes lawyer Yves Joli-Coeur in his guide Condo Insurance: Everything You Need to Know, published by Wilson & Lafleur.

“In the event of a disaster and insufficient insurance coverage, the association will be forced to impose a special assessment on each condo owner,” he explains. “If you have taken the precaution of adding a guarantee for this to your personal insurance policy, you can then claim reimbursement of this special assessment from your own insurer. The insurer will then have the right to take legal action against the administrators who failed in their duties.”

Negligence

Poor building maintenance is the biggest issue in condominiums, observes Line Crevier.

“There is resistance to increasing condo fees,” she says. “This hinders maintenance. However, if a building is well-maintained, the risk of problems decreases, and there will be fewer claims,” she explains. “In return, the association will benefit from better insurance terms and a lower deductible. It’s more advantageous.”

Deductibles of $10,000, $15,000, $25,000, or even $50,000 are becoming the norm for water damage, notes André Delage, who is also the president of the condominium association for the complex where he lives in Pointe-Claire. He therefore advocates for prevention.

For example, since his building was constructed in 2001, a regulation requiring condo owners to replace their water heaters every 10 years was added in 2012. In the condominium registry, each condo’s water heater is duly identified with its serial number and the date it was replaced.

This approach may become the norm, as more and more insurers are requiring water heaters to be replaced every 10 years and for a policy to be implemented to manage these appliances.

Mr. Delage also reminds condo owners who have undertaken renovation work that they must inform their insurance company.

“If someone has invested $100,000 to install exotic hardwood flooring instead of parquet and has completely renovated the kitchen and bathroom, they must notify their insurer to be fully compensated in the event of a disaster. This is because their insurer will cover the difference between the replacement cost of the original installations and the replacement cost of the improvements made.”

To make it easier to determine the responsibilities of insurance companies, Ms. Crevier recommends keeping the original plans and specifications, as well as records of any improvements made. Mr. Delage goes further, advising that condo owners also provide the condominium association with a plan and a list of the improvements made.

By doing so, condo owners can avoid many headaches and provide a valuable service to future buyers of their condo.

La Presse