Column on the chaos in condo insurance

CHAOS REIGNS IN THE WORLD
OF CONDO INSURANCE

 

Confusion is running rampant in the world of condo insurance. Insurers, claims adjusters, and insurance brokers are clashing over the interpretation of Bill 141, which was passed last June.

 

The first articles of this law came into effect just before Christmas. However, the industry cannot agree on their exact scope. And guess who is bearing the brunt of this chaos? That’s right—condo owners, who are completely baffled by this legal jargon.

 

“There is still a lot of uncertainty about the interpretation and implementation of the law,” says Lisane Blanchard, spokesperson for the Chamber of Damage Insurance (CHAD), which works to protect the public.

 

“There is a serious misunderstanding of the new legislative framework,” confirms Yves Joli-Coeur, a lawyer specializing in real estate law and secretary general of the Quebec Association of Condominium Managers and Owners (RGCQ). He has even written a letter to the Ministry of Finance to complain about the law’s gray areas.

 

Quebec needs to clarify this situation as soon as possible because some policyholders are currently left high and dry. Certain insurers—though not all—are outright refusing to compensate them.

 

Problematic Claims

 

The brokerage firm PMT Roy, which insures around 750 condominiums across Quebec, recently encountered three problematic claims in a single week.

 

In one case, a worn-out faucet caused $5,000 in damages. However, the condo association cannot be compensated because its insurance policy has a $25,000 deductible, which is not uncommon. Due to the surge in water damage claims in recent years, some insurers have raised deductibles to as much as $100,000.

 

The insurer of the affected condo owner is also refusing to pay, interpreting the new law to its advantage. “They’re saying the condo association will have to handle the repairs themselves and pay out of pocket,” reports Annie Gosselin, a commercial damage insurance broker at PMT Roy.

 

This is bound to spark conflict. If condo associations have to pay for every incident below the deductible, condo owners will face hefty special assessments. They are likely to be furious with their negligent neighbors.

 

“Why should I pay for them?” they’ll say. “I replaced my water heater! My faucets are in good condition!” A perfect recipe for neighborly disputes.

 

“If some insurers continue with this approach, condo owners will stop replacing their plumbing fixtures and maintaining their private units, knowing that the condo association will foot the bill every time. That’s not reasonable,” says Gosselin.

 

Setting the Record Straight

 

Since 1994, condo associations have been required to insure all common and private areas of the building, explains Joli-Coeur. However, most condo declarations require owners to carry liability insurance to cover the condo association’s deductible. This obligation will soon become law.

 

Under the new law, condo associations will no longer be required to file a claim with their insurer for every incident, which could be disadvantageous when damages slightly exceed the deductible.

 

Whether or not a claim is filed, the condo association will still be obligated to carry out repairs. However, it will never be able to claim more than the deductible amount from the at-fault condo owner. The term “at-fault” is currently causing some strange interpretations.

 

Additionally, condo owners must also insure their personal belongings and any improvements made to their unit. This is logical: why should the condo association’s insurance pay for exotic hardwood floors or marble countertops installed by an individual owner?

 

To help condo owners better identify and assess the value of improvements made over the years, the law will require condo associations to prepare a sufficiently detailed description of the base unit. However, the exact format of this document remains unclear.

 

If condo associations fail to comply, the entire building will be presumed to have no modifications, meaning it will be fully insurable by the condo association. While this part of the law is not yet in effect (except for buildings constructed after June 13, 2018), “insurers are already applying it as if it were, leading to claims adjusters saying all sorts of things,” laments Joli-Coeur.

 

A Broader Reform is Needed

 

The adoption of Bill 141 is just one piece of the puzzle in the broader reform of condo law.

 

The other piece was Bill 401, introduced by Liberal Minister Lise Thériault last June. Unfortunately, the bill died on the order paper, and it remains to be seen whether the Coalition Avenir Québec will have the motivation to pick up where it left off.

 

This reform is essential. The rules governing condominiums will turn 50 this year. They’re far from modern.

 

In 1969, condos were a marginal phenomenon. Today, the issue affects a significant portion of the population. In Quebec, more than 413,000 households live in condominiums, representing nearly 12% of all households, according to Statistics Canada. The percentage is even higher in Montreal, where nearly one in five households (18.5%) lives in a condo.

 

It’s high time to clean up these outdated rules.

 

As the condo stock ages, stricter rules are needed for reserve funds to ensure there is money available when major repairs are required.

 

And now that we have massive buildings with hundreds of condo units, we need to ensure that managers are professionals with the necessary skills to navigate this complex world.

 

STÉPHANIE GRAMMOND
LA PRESSE

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Condo and Water Damage

Condo and Water Damage

Water damage is a real headache. For the past 10 years, it has been the leading cause of home insurance claims across all types of housing.

 

Every year in Quebec, more than $500 million is paid out to cover such damages. In condominiums specifically, 95% of claims made by condo associations are related to water, and 60% of the compensation paid in these cases is tied to water damage.

 

The Most Common Causes

  • 50%: Plumbing issues
  • 33%: Water infiltration
  • 6%: Water heaters

 

Most of these issues could have been avoided with a little vigilance and, above all, proper maintenance.

 

Protections to Consider

 

When living on the upper floors of a condo, one might feel unconcerned about water infiltration or sewer backups, assuming they are covered by the condo association’s insurance policy. However, it may be important to add additional water damage protections to your personal condo insurance policy.

 

If, following damage to the common areas, the insurance coverage held by the condo association is insufficient to pay for repairs, all condo owners—or some of them—may be required to contribute. By having these additional protections, a condo owner could turn to their insurer to cover such costs.

 

Insurance Bureau of Canada

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In a Condo, Who Pays for Water Damage?

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

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UNIONS OF CONDOMINIUMS IN THE SPOTLIGHT OF INSURERS

UNIONS OF CONDOMINIUMS IN THE SPOTLIGHT OF INSURERS

«Insurers tighten rules for condominiums », headlined an article in Condoliaison published in autumn 2009. A year later, this statement made sense. In insurance, the noose tightens against condominium corporations. And rightly so, since “poor maintenance, insufficient investment, as well as the lack of money invested in the pension fund, are key elements that directly affect the claims for condominiums,” said Bureau d’assurance du Canada (BAC). At this rate, and with the aging real estate, will problems get worse?

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