Up Close and Personal with Condo Insurance
Earlier this month, we dug into the details of condo contracts and discussed everything you need to know to make sense of that complex, somewhat unnerving topic. This week, we aim to top that article in terms of intimidation factor by digging into the one theme even more fraught with legalese, confusing jargon, and potential financial pitfalls.
That’s right: we’re talking about insurance!
Personal condo insurance, to be specific. Don’t worry, though – we won’t be going it alone. Like that previous blog, we’re joined today by Danyal Fayaz, and the entire Catalyst ops team as we navigate the ins and outs of personal insurance for condo owners: what to know, what to look out for, and everything in between.
Five Things to Ensure You Know About Condo Insurance
1. Make Sure Your Coverage Matches Your Condo Corporation’s Deductible
There are a couple of different kinds of condo insurance – but for this particular point, we’re specifically looking at personal and corporation insurance.
“Condos have their deductibles for water damage, sewer back-ups, fire, et cetera,” Fayaz explained. “This is something the individual condo owner is responsible for – they should have coverage that matches the condo deductible.”
Fayaz’s point here is one well worth paying attention to. In the event of an accident or mishap, the condo corporation will look to determine where the fault lies – and if they find it lies with a unit owner, they’ll be charging that owner with the deductible rate associated with the condo corporation’s insurance to set things right.
Recent changes to the Alberta Condo Act have made it so that no matter what a condo board’s bylaws read, the most that a unit owner can be charged back is $50,000 – whether the deductible comes in at more than that or not. However, even with this chargeback cap, fifty grand is a lot of money to fork over.
“If a condo corporation has $50k deductible on water and $25k on septic, then an owner needs coverage for $50k for water losses and $25k for septic losses,” Gutsche summarized. “That way, you’re covered in an accident and aren’t on the hook to pay your condo corporation’s deductible if you, as a unit owner, happen to be found at fault.”
2. Special Coverage for Special Levies
Nobody likes to hear that their condo is gearing up to issue a special levy – but with personal condo insurance, you can take some of the sting out of this unexpected expense.
“Special levies are typically something owners can get coverage for,” Gutsche told us. “You need to be careful because that coverage comes with some conditions. For example, let’s say a tree falls onto the roof of your condo building, and the repair cost is way more than the budget can handle, so suddenly, the condo corporation has an enormous shortfall. So that’s something that they could put in a special levy for – and when the owner gets their portion (maybe they’ve got to pay $3000 for their share), if they’ve got insurance coverage, they can pay a deductible and get their insurance provider to pay the $3000 special levy.
“However, this only applies to unplanned and unexpected events,” Gutsche cautioned. “If your problem is that the board just didn’t budget enough one year, that claim will be denied. If the reserve fund is underfunded, that claim would be denied.”
Coverage for special levies can be a game-changer – so long as those specific conditions are satisfied and the coverage can carry through.
3. Better Not Forget About Betterments and Improvements
As many proud condo owners can likely relate, there’s nothing quite so satisfying as putting in the time, effort, and expense to upgrade your pad, renovate your home, and make your unit somewhere comfortable and unique.
What happens when the unit owner above you lets the bathtub overflow and rains on your parade?
“If the condo board is responsible for covering the damages (which they always will be in multi-unit events), they’ll repair up to the spec of the base build,” Fayaz explained. “So, if the base build of a building unit has carpet, and the owner has upgraded to hardwood flooring, that would be considered a betterment on the carpet. If a loss then occurs and that hardwood flooring gets damaged, the condo corporation insurance will only cover replacement costs for the base build standard: in this case, carpet. The owners should have personal insurance coverage to pay for the betterment (hardwood) to ensure the upgrade is covered.”
4. Avoiding Losing Out to Loss of Use
Though few and far between, there are circumstances in which a condo owner may find themselves unable to occupy their unit: as the result of ongoing repairs, for example or recovery after an incident such as a fire or a flood. In these instances, owners and tenants may be required to vacate their unit for a period of time – and that can get expensive without insurance to fall back on.
“This is a great example of something an owner should have insurance for,” Fayaz told us. “Ultimately, the condo corporation is only responsible for repairing the unit; they’re not responsible if the owner is displaced during the repairs or if they lose rental income as a result.”
5. Tenant Insurance, Owner Insurance, and Condo Bylaws
Things can get complicated when tenants and their insurance (or lack thereof) come into the picture, so we’ll do our best to keep things as simple as possible.
Gutsche sums it up best: “Basically, you should always have insurance, whoever you are, because owners and their tenants are jointly and severally liable. This means that an action or inaction by the tenant that causes the loss is understood to be an action or inaction by the owner that causes the loss. So, if your tenant flicks a cigarette butt and starts a fire, you, the owner, are jointly liable.”
There’s more to it than that, though, as Gutsche explains. “If a tenant does something that is very obviously their fault – running a sink and then exiting their unit, for example – rather than running the claim through the corporation’s insurance, it goes directly to the tenant’s insurance. This is called subrogation, and when this occurs, it’s not a claim against the corporation’s insurance, so their premiums don’t go up – and the owner isn’t responsible for covering any deductibles, chargebacks, or the like. But, on the other hand, if the tenant doesn’t have tenancy insurance, subrogation isn’t possible. So instead, the claim is processed more like a traditional claim: it goes through the condo corporation’s insurance, the owner’s insurance covers the corporation’s deductible, and the corporation takes a hit in their claims history and gets poorer pricing the following year.
“That’s why it’s in both the corporation’s and the owner’s best interests to ensure tenants moving in have insurance coverage,” Gutsche concluded. “If there’s no tenant insurance to subrogate against, you, the owner, will be held to account, which will likely hit you in the pocketbook.”
Thank you again to Danyal Fayaz, and the Catalyst ops team for taking the time to chat insurance with us – we couldn’t appreciate it more! Have further questions about condo insurance? Contact us at Catalyst Condo Management today!