It is important for condominium unit owners, condominium boards and insurers of both condominium corporations and unit owners to understand the unique insurance requirements that come along with for life in a condominium building. Determining who is responsible for arranging what insurance, and understanding what insurance options exist are important for all stakeholders within the condominium community.

In a world of increasing litigation, it is important to know who is responsible for what in the event of a loss, and for all parties to maintain adequate insurance, in light of their responsibilities.  Parties with insufficient insurance or even worse, no insurance can potentially lose big, if adequate insurance is not held by the condominium corporation or an owner.

Legislation

While other provinces will have their own condominium legislation, in Saskatchewan, The Condominium Property Act, 1993 (the “Act”) imposes a duty on the Corporation to carry insurance for the benefit of the condominium corporation and unit owners to cover the common property, common facilities, structural properties and service units. All condominium corporations must maintain insurance coverage under a master insurance policy, with annual reviews and appraisals of the common property and main building structure. The master policy protects against major perils in an amount equal to the replacement cost of the insured property, and against any other perils that are specified in the bylaws of the corporation, or as directed by the Board. However, issues may arise for insurers of a unit owner in the event of a specific loss, in view of what the unit owner is and is not entitled to under the master condominium corporation policy.

While it is important to understand what is covered by the master policy of a condominium corporation, all too often owners and their insurers are naive about what is and is not covered under the master policy for replacement and rebuilding common condominium property, as distinct from damage to improvements within a unit.

Standard Unit Description

Generally, a standard unit description (the “SUD”) is set by the developer of a condominium, which is inherited by the condominium corporation and their owners. The Act defines SUD as the standard unit description for each unit or class of units that is: (i) prepared by the developer and accompanies an application to issue titles pursuant to section 5.1; or (ii) contained in the bylaws. The SUD details the minimum standard unit the condominium corporation is responsible to replace or repair, through its insurance policy, to build back.

Improvements

Disputes arise when the owner has completed “improvements” to the unit, which they believe would be covered by the master policy, or where the owner’s insurer becomes responsible for significantly more than they bargained, when the SUD is overly simplistic. Any betterments or improvements installed by the owner, in addition to items covered by the SUD will not be covered by the master policy.   In some instances, the insured owner has no concept of what improvements a prior owner may have made, and this only becomes apparent during adjustment of a loss.

How can insurers protect themselves from a claim for incidences not covered by betterments and improvements?

“Improvements” are defined under the Act as an improvement made or acquired by an owner with respect to a unit, as determined in accordance with the SUD if any, for that unit or the class of units of which the unit is a member.

Given the ambiguous wording of the Act, insurers should exercise diligence to understand what betterments and improvements they may be insuring for a condominium property. SUD’s can be simple or comprehensive, and often will not cover things such as upgraded appliances or flooring. Where no SUD exists, debate between insurers will most likely ensue as to which insurer is responsible for what portion of a loss.

Insurers should work to understand the SUD.  Receiving and reviewing a copy of the condominium corporation bylaws to assess what the SUD says is an important step an insurer could take during the underwriting process.  Further, confirming with the insured what improvements they have made, at each renewal of their policy, and trying to understand any improvements that may have been made by prior owners, before the insured’s purchase of the unit would assist in understanding possible exposure in the event of a loss.  For claims examiners, all of these items require consideration when adjusting a loss.  It is imperative for insurers to understand the betterments and improvements that their clients have made or inherited in their condominium unit. Failure to appreciate this can result in surprises after an insured condominium unit loss.