For several reasons, insuring a strata property is considerably different from insuring a house. The owner of a single-family dwelling, for example, is responsible for insuring the entire property. But within a condominium building, the responsibility is divided between the strata corporation and the individual owners of each unit. Under the Strata Property Act, the corporation insures the common property owned and used by all strata owners as well as certain interests of each strata owner. Strata owners are responsible for insuring other exposures, including liability, fire and theft, within their individual properties.
Strata corporations, according to the Act and its accompanying Regulations, are required to obtain full replacement-value property insurance against loss resulting from fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft and vehicles, vandalism and malicious acts, on:
- common property
- common assets
- buildings shown on the strata plan
- 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).
Fixtures include items attached to a building, such as floor coverings, electrical wiring and plumbing but not household appliances.
Owners insure any gaps or shortfalls in the above coverage as well as personal property within their strata unit—anything, in fact, that does not fall within the ambit of common property. For example, an owner may want to take out earthquake coverage or supplement the limits of the corporation’s policy. (The latter instance is an extra precaution for a strata owner. While a strata corporation must maintain full replacement-value insurance on property, the full replacement value of the property is determined in accordance with the market price of the property at the beginning of the policy year. If the market rises sharply over the policy year, the value of the insured property when a loss occurs may have increased considerably since the time when the coverage began. This circumstance creates a shortfall in coverage, adversely affecting individual strata owners.)
Loss assessment coverage and contingent insurance coverage are two types of insurance particular to strata properties. The first covers assessments made by the corporation resulting from damage to the strata common property caused by an insured peril. This occurs when a corporation’s insurance does not cover an entire loss or if coverage is excluded (for damage arising from an earthquake, for example). In such instances, a corporation levies an assessment on the individual owners to repair the common property and the assessment coverage is triggered.
Another occasion when this insurance may apply is when a particular strata unit owner accidentally damages common property. Many strata corporation bylaws include a provision that the corporation can compel an owner who is responsible for such damage to pay the deductible amount. The assessment coverage clause in a policy may cover an assessment in such a case, unless expressly excluded in the policy.
Contingent insurance covers loss to an individual strata unit, caused by an insured peril, to which the corporation’s insurance does not apply. Again, it may be possible to interpret the term “loss”—as used in contingent insurance clauses—to encompass financial loss arising from an owner’s share of an assessment. However, principles of insurance policy interpretation dictate that insurance policies must first be interpreted by form and second as an entire policy, so that all the clauses make sense as a whole.
Given those principles, where both assessment and contingent insurance coverages are included in one policy, providing coverage for a strata-wide assessment under contingent insurance would be redundant since assessment coverage expressly covers this risk. If contingent insurance was intended to cover assessments as well as damage to a strata owner’s unit, assessment coverage would be obsolete.
If, however, the policy wording only mentions contingent insurance, and not assessment coverage, it is prudent to expressly address the underwriter’s intention regarding the scope of the contingent insurance. Without such clarification, a court is more likely to find that contingent insurance would also cover strata corporation assessments.
As the limit for contingent insurance is ordinarily much greater than the assessment coverage limit, careful attention to the wording of these clauses and the particular characteristics of strata property insurance is crucial.