CONDO INSURANCE: A DRIPPING TIME BOMB
Allison Lampert (THE GAZETTE November 18, 2012)
The first flood started in a bathroom, possibly after a child threw
something in the toilet, causing it to overflow.Then there was the
resident who forgot to shut his bathtub tap, causing another $25,000
worth of damages, as water leaked from his apartment to the one below in
the Montreal condo building. After yet a third flood last year,
co-owners were left in a bind when renewing their building’s insurance
policy this fall: their annual premium had doubled to $35,000, and they
were no longer covered for water damage.
Now each time a toilet or bathtub overflows - in what’s an exceptionally
well-maintained condo building - a bill will have to be paid directly by
the 50 co-owners.
“We went to every insurance company around,” said Michael Wilk, property
manager for the building, which he declined to name. “We even asked to
have a $100,000 deductible, but they refused. No one else wanted to
insure us. It (the building) is now basically self-insuring (for water
damage).”
The case above is an extreme example of what experts are calling a
growing problem in residential real estate: Canadian condo owners lack
ample insurance for rising repair costs at a time when property values
have soared in the country’s largest cities. While there are no
statistics documenting under-insurance in condominiums, co-owners,
lawyers, insurance brokers and industry officials interviewed by The
Gazette say it has become a critical and widespread issue in the condo
market, the fastest-growing housing sector in Montreal, Toronto and
Vancouver.
Indeed, inadequate coverage - either because of frequent damage claims,
attempts by owners to reduce monthly fees by keeping premiums low, or a
failure by condo boards to determine the true costs of replacing their
buildings - has emerged as a bigger threat to the condo sector than the
much-publicized risk of overbuilding, several real estate experts say.
One particularly alarming tendency has been the small but growing number
of Montreal-area condo buildings that now have insurance deductibles as
high as $100,000 - a trend first seen in Vancouver.
“A condo isn’t a home where there is one person. You are multiplying the
risk,” said attorney Yves Joli-Coeur, a specialist in condo law at the
Montreal firm De Grandpré Joli-Coeur. “If you have too many floods in an
apartment, then the insurer will tell you either ‘I won’t insure you’ or
you will have a high deductible. This is what we are going to see in the
future in Quebec. There will be buildings that are no longer insurable.
“And when we have trouble finding insurance, then it has a direct impact
on the value of the condo.”
Concern over home insurance comes at a time when Quebec and Ontario are
updating provincial condo laws to better protect existing owners and the
growing number of new buyers. By 2016, the number of Quebec households
living in condos is expected to swell to 266,000, provincial data show,
while there are at least 500,000 condo units already in the province of
Ontario - with tens of thousands of new ones under construction in
Montreal and in the Greater Toronto area.
This week, recommendations to overhaul Quebec’s aging condo laws -
including calls for condo boards to obtain “reasonable deductibles” -
were made to Parti Québécois Justice Minister Bertrand St-Arnaud, who is
moving forward with reforms next year.
In both provinces, condo boards - staffed by volunteer owners - are
legally obliged to have insurance covering their buildings, from common
areas like the lobby, to the basic structure of the private units.
Individual owners - who are responsible for the value of their own
furniture and any improvements they make to their condos, like the
installation of hardwood floors - don’t always bother to get personal
insurance, sometimes because they mistakenly believe their units are
fully covered by the condo board, mortgage brokers say.
“People don’t always understand who is responsible for what,” said Serge
Meloche, business-development manager of the insurance brokerage Dale
Parizeau Morris Mackenzie.
Meloche cited the result of an internal study by a large Quebec
evaluation firm, which showed that 70 per cent of the 270 homeowners
surveyed were under-insured for the value of their properties.
“One of the big issues is that people buy condos without thinking of
this (insurance costs),” said Line Crevier, a technical expert at the
Insurance Bureau of Canada’s Quebec chapter.
Even real estate brokers contacted by The Gazette said they were unaware
of the complexities of condo insurance - where responsibility for
coverage and the sharing of blame in the case of damages, can vary from
building to building depending on what’s written in the declaration of
co-ownership.
“If you are a real estate broker, then you must make sure you inform the
buyer that the building isn’t sufficiently insured,” Joli-Coeur said.
That information is critical because even as the number of condo owners
is rising in Canada, so are the costs of protecting their homes,
especially from the growing incidents of water damage - including sewer
backups and burst pipes - the most common problem in condo buildings,
experts said.
Intact Insurance spokesperson Gilles Gratton said the cost of water
damages for the company over personal properties in Quebec grew from
$14.2 million in 2002 to $48.5 million in 2011, with the average claim
more than doubling during that period. In an email, Gratton attributed
the rise in the water damage in Quebec and other parts of the country to
a greater prevalence of severe storms - like May’s flash flood in
Montreal - a problem compounded by aging municipal infrastructure that
cannot cope with the increased rainfall, and a rise in the proportion of
basements that have been transformed into living spaces.
“The severity of water damage in condominiums is high, as a single
occurrence may affect many units at the same time,” he said.
Gratton said Intact doesn’t intend to cease insuring condos, but remains
vigilant about costs: “We pay close attention to ensure that the
protection offered is priced adequately and this line of business
remains sustainable over the years.”
A spokesperson for Aviva Canada Inc. didn’t return The Gazette’s
repeated requests for insurance data.
While the insurance industry couldn’t provide statistics on average
rises in premiums, anecdotes from Montreal brokers, owners and property
manager suggest they’ve risen faster than property values over the last
few years.
One well-known Montreal insurance broker, who oversees policies for 300
different condo boards, said his clients’ premiums rose between 20 and
50 per cent - depending on the size of the building - over the last
three years.
To reduce the cost of premiums, or because they’ve made repeated claims
for damages, some condo boards in Vancouver and now Montreal have
$50,000, even $100,000 deductibles in buildings with as few as 40 units.
“I know there are a few (in Vancouver) that have six-digit deductibles,”
said Lindsay Olson, an Insurance Bureau of Canada spokesperson for
Western Canada. “I think it’s a fairly unusual situation, but we’re
seeing more of it. And if you’re living in one of those apartments, it
should be a cause for concern.”
The risk is that they leave individual co-owners exposed to hefty bills
in cases of negligence. Ontario, Quebec and B.C. all allow condo boards
to sue a co-owner for the deductible if it’s proven that he or she is
responsible for the damages, real estate lawyers from all three
provinces say.
“If your washing machine breaks or if your dishwasher overflows, you’re
responsible,” explained B.C. attorney Jamie Bleay, an expert in condo,
or strata law at Access Law Group in Vancouver. “As the deductibles go
up, it’s becoming more of an issue to owners.”
While individual co-owners can get private coverage to protect them in
such cases of negligence, an owner who doesn’t have insurance could be
left paying a $100,000 deductible out of pocket. And in a case where no
one in the building is deemed responsible for the damages, high
deductibles can lead to repeated bills for owners.
A co-owner’s personal insurance can help defray these costs, but
companies set limits on coverage for condo board deductibles. Intact
Insurance, for example, sets a maximum limit of $500, an amount that
won’t go far in a building with a $50,000 deductible, 50 co-owners and
even two floods a year.
“If you put deductibles that high, then you’re not accomplishing your
goal of insuring a building,” said Joli-Coeur, who believes Quebec condo
laws should be changed to prevent cases of deductibles being raised to
“unreasonable” amounts to lower premiums.
At the Montreal building with no insurance for water damage, the
estimated 50 co-owners agreed to set aside $50,000 in a special fund to
cover themselves in the case of future incidents, Wilk said. Another
$50,000 might be set aside next year.
Living in a building with no insurance for water damage means being
especially vigilant, with a special meeting held recently to remind
owners to turn off their taps. Memos are to be sent out warning
residents to shut their main valves if they’re going out of town for the
holidays, Wilk said.
What’s most tragic about this particular building is that it lost its
coverage, even though condo board administrators had done everything
right.
“It’s just absolutely bad luck,” Wilk said. “It’s a great, beautiful
building that’s really well-maintained with a really strong, proactive
condo board. It’s a bit scary because if it can happen in this building
it can happen to anyone.”
