Strata Insurance - Legally Speaking
Many strata owners do not know they may be personally liable to reimburse their strata corporation for its insurance deductible, the portion of the loss the insured must pay in an insurance claim, which can be many thousands of dollars. The British Columbia Law Institute's formidable committee of strata experts (the "Committee") recently recommended changes to the Strata Property Act, which would require most owners to insure themselves against this liability.1 The Committee observed,2
Many strata corporations have seen their deductibles, particularly for damage caused by water ingress, rise significantly. An owner who isn't adequately insured against this risk could face a crippling liability.
The Strata Property Act requires a strata corporation to carry property insurance over, "(a) common property, (b) common assets, (c) buildings shown on the strata plan, and (d) fixtures built or installed on a strata lot, if the fixtures are built or installed by the owner developer as part of the original construction on the strata lot."3 A strata corporation must also carry liability insurance against claims for injury or damage to the person or property of a third party caused by an accident or negligence.4 Each year, a strata corporation must review its insurance needs and report on its insurance coverage at the annual general meeting.5
Deductibles vary and can be large, depending on the risk insured or the strata corporation's own claims history. If a strata corporation claims against its insurance policy for an amount exceeding the deductible, the corporation usually absorbs the deductible as a common expense to which every owner contributes through their respective strata fees or a special levy.
What if the cause of the strata corporation's insurance claim is an owner's mishap?6 Even though the deductible is a common expense, the Strata Property Act permits the strata corporation to sue that owner to recover its deductible if the, "owner is responsible for the loss or damage" in question.7 The Act sets a low threshold, making the owner responsible for the deductible if they are the primary cause, or answerable for, the mishap.8 There is no need to prove negligence, being the failure to meet a particular standard of care. In one case, an owner's plugged toilet caused water to back-up and escape into suites below, producing approximately $50,000 in damage. The strata corporation claimed against its insurance policy for the repairs, charging back the $10,000 deductible to the owner. The court confirmed the owner's liability for the deductible. Since the water came from a toilet in the owner's strata lot, he was responsible; there was no need to prove him negligent.9
A strata corporation can amend its bylaws to require a higher standard of liability, such as negligence. In one case, the strata corporation's bylaws stated that any insurance deductible paid by the strata corporation arising from an owner's, "act, omission, negligence or carelessness" will be charged to the owner.10 An owner's clogged toilet over-flowed, causing $42,538 in damages to other units. To pay for the repairs, the strata corporation claimed against its insurance policy, charging back its $25,000 deductible to the owner. Even though the bylaw set a higher standard than the Strata Property Act, the court enforced the bylaw. After flushing the toilet, the owner breached the standard of care by failing to ensure the waste cleared the bowl and the water shut off. This was negligence, as required by the bylaw, and the court ordered the owner to pay the $25,000 deductible.
The Strata Property Act's Schedule of Standard Bylaws constitutes the default bylaws for every strata corporation, except to the extent a corporation modifies them by filing an amended bylaw at the Land Title Office. The Committee recommends adding a new standard bylaw to require every owner to have insurance to cover payment of a deductible under the strata corporation's property insurance policy. Where an owner is responsible for the loss giving rise to the strata corporation's insurance claim, the Committee recommends amending the Act to allow the corporation to charge back to the owner the lesser of the cost of repairing the damage or the deductible. The Committee also recommends amending the Act to require a strata corporation each year to inform owners and tenants of any material change in the corporation's insurance coverage, including any increase in a deductible.
Pending these changes, a REALTOR® acting for a strata buyer is wise to warn the client about this liability. It's also prudent to ask about the strata corporation's deductibles and check the bylaws for any provision affecting this risk. A careful buyer agent will warn their client to purchase property insurance to protect the buyer against liability for the strata corporation's deductible.
|1.||British Columbia Law Institute, Report on Insurance Issues for Stratas by the Strata Property Law (Phase Two) Project Committee, BCLI Report No. 86 (Vancouver, British Columbia Law Institute, March 2019) at p. 67 and 69, online: British Columbia Law Institute.|
|2.||Ibid. at p. 87.|
|3.||Strata Property Act, SBC 1998, c. 43, s. 149(1).|
|4.||Ibid. s. 150(1).|
|5.||Ibid. s. 154.|
|6.||Ibid. s. 158(2).|
|7.||Ibid. s. 158(2).|
|8.||Mari v. Strata Plan, LMS2835, 2007 BCSC 740.|
|9.||Strata Plan VR360 v. Jauhar, 2016 BCPC 238.|
|10.||Strata Plan LMS 2446 v. Morrison, 2011 BCPC 519.|
|11.||British Columbia Law Institute, supra note 1, p. 91-92.|
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