Rising insurance deductibles for condo corporations could be leaving condo owners at risk of significant financial losses. A story about a Toronto condo owner that was left on the hook for $27,000 in damage to other units in her building has highlighted a potential gap in coverage that could affect anyone who owns a condo unit in Ontario.
“Condo insurance can be tricky,” says Becky Burnett, Sales Broker at Mitch. “Because there’s more than one policy that applies, it’s important to make sure that the different policies are aligned and that there are no gaps so you don’t have any nasty surprises.”
The gap in this case is between the condo corporation’s master insurance policy and the unit owner’s condo policy. To better understand how it all works, here is a breakdown of the different insurance policies that apply to a condo building:
Condo master policy
Condo corporations in Ontario are required to have a master condo insurance policy. This is a type of business insurance that protects the common elements of the building, like the concrete walls and floors, underground parking, lobbies, hallways, elevators, plumbing, electrical and HVAC systems. Like most insurance policies, deductibles apply and the amount may vary for different types of claims.
Unit owners share the cost of this coverage through their monthly maintenance fees.
Condo insurance for unit owners
Unit owners usually have their own condo insurance policy. This covers liability for losses to third parties, furniture, appliances and other belongings in the unit, and any fixed parts of the unit that are not covered under the master policy. Depending on the condo bylaws, this can include lighting and plumbing fixtures, drywall, cabinets and floors. Any upgrades made to whatever was considered a standard unit (wood floors, fixtures, etc.) are also covered under the unit owner’s policy.
Condo insurance for unit owners also includes coverages that are meant to fill gaps in the master policy:
Loss assessment (property):
If the condo suffers damage to common elements, that’s covered under the master policy, but a deductible applies. If there’s a claim, the condo corporation can recover the deductible from the unit owners. So if your condo has 20 units and has to pay a $50,000 deductible, you could get a bill for $2,500. Your loss assessment (property) coverage would pay for this.
Loss assessment (liability):
The condo corporation master policy also includes liability coverage which protects against things like slip and falls in common areas, or injuries in a pool or gym. If the master policy has a lower liability limit, a large claim could exceed that limit, and the corporation would recover the balance from the unit owners. Say there was a $6 million court award for a fatal drowning or fire, and the liability limit on the master policy is only $5 million, 100 unit owners would each be responsible for $10,000. This would be paid by the loss assessment (liability) coverage in your condo policy.
Where is the gap?
If you have condo insurance, you will have different limits for different types of coverage. In the case of the Toronto condo owner mentioned above, the master condo policy had a deductible of $50,000 and the unit owner had a loss assessment (property) limit of $25,000. Because the damage clearly originated with an escape of water from a particular unit, the condo corporation was entitled to recover the entire deductible from the owner of that unit, instead of spreading the cost around to all unit owners. The first $25,000 was covered. The rest was not.
Why is this happening?
For a long time condo master policies had relatively low deductibles like $2,500, $5,000 or $10,000. In recent years, condo corporations have been raising the deductibles on master policies to $25,000, $100,000 or even $500,000 in some cases. Condo corporations do notify unit owners when this happens, but those unit owners may not know how it affects them or that it could leave them exposed.
“Condos have been a source of quite a few claims on the commercial side of insurance,” says Burnett. “And that has put pressure on condo corporations. Either increase maintenance fees to pay for higher premiums, or raise deductibles. Most have chosen to raise deductibles, but that passes the problem onto the unit owners.”
How to protect yourself
Fortunately, the solution is fairly simple.
- Read your condo bylaws to see what the deductibles are for the master policy. Make sure it’s the most recent version of the bylaws.
- Check your own condo insurance policy. Make sure that your loss assessment (property) coverage is at least as much as the highest deductible in the master policy.
- If it’s not, call your broker and ask that your coverage be increased to match the highest deductible in the master policy.
“Insurance policies can be confusing,” says Burnett. “Like the fact that there are two different coverages both called loss assessment. If you’re not sure, give us a call. We’d be happy to look over your policy and make sure your limits are what they should be. That’s what we’re here for.”