for the corporation for these costs, but the owners may be unaware of this risk exposure and may not have appropriate insurance in place. If the owner ’ s insurance policy does not cover these costs, the owners may face a significant unanticipated financial burden. Owners may also dispute significant chargebacks, leading to litigation, particularly where the unit owner did not cause the damage by any act or omission; Shifting responsibility to individual unit owners Given the factors already discussed, many condo corporations are implementing strategies aimed at shifting the cost of property damage to individual unit owners. Three strategies are often used to shift responsibilities to unit owners: (1) adopting a standard unit by - law; (2) adopting a deductible by - law; and (3) selecting an insurance policy with a high deductible but low premium. We have already discussed choosing a higher deductible, and the risks of that option. The other two strategies include: Standard unit by - law: Under the Act, a condo corporation is obligated to insure the components of a standard unit, while the unit owners are responsible to insure betterments and improvements. The Act allows condo corporations to enact a standard unit by - law that define the “ standard unit ”. The standard unit definition can be used to significantly reduce the components of a unit that the corporation must insure (i.e. exclude flooring or countertops). Deductible by - law: Under the Act, an insurance deductible can be charged back to a unit owner, but only if the damage was caused by the unit owner ’ s act or omission and only for damage to that owner ’ s unit. However, the Act allows condo corporations to enact by - laws that make unit owners responsible to pay the lesser of the cost of repair and the deductible when the damage is from their unit,
whether or not there was any act or omission. This can extend to damage to other units and the common elements. Adopting the above by - laws can result in the corporation making fewer and less expensive claims. Even where there is a claim, these by - laws can also reduce the corporation ’ s out of pocket expenses to repair damage occurring as a result of an insurable event. How to move forward These three strategies can be part of an effective way to mitigate the rising cost of condo insurance. While this may be beneficial for the corporation ’ s bottom line, the strategies often mitigate the costs to the corporation by transferring the costs to individual unit owners. This can seem “ unfair ” to owners in situations where a unit owner is responsible to pay for damage that was not caused by any act or omission of the unit owner. All unit owners face the risk of being the unlucky unit that experiences damage from an insurable event beyond their control. Implementing these strategies requires significant discussion and planning. Owner education is key to ensuring that all interested parties understand the benefits, risks and their responsibilities associated with each strategy. For further information about mitigating the rising cost of condo insurance, contact a lawyer from our office.
CCI Review 2020/2021 —June 2021 - 12
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