What’s happening to Ontario’s Condominium Insurance: How to Deal with It.
Many Ontario condominiums have seen huge increases in insurance premiums and deductibles in the last round of policy renewals. We are seeing deductibles for water damage and sewer back-up as high as $250,000. We are aware of one property where the deductibles have reached $500,000.
These very high deductibles are not the norm in the industry, although they are certainly increasing, but it does raise issues that boards of directors must address. The first thing a corporation must do is notify owners of these deductible changes in a Periodic Information Certificate within the time frames set out in the Condominium Act.
The board should then either review its Declaration and By-laws or have its legal counsel do so to determine what provisions apply regarding deductible recovery. Many by-laws include full recovery of deductibles from unit owners, except where the Corporation’s act or omission has caused the loss. With deductibles reaching these very high amounts, unit owners are often unable to secure sufficient deductible coverage. These by-law provisions must be considered with your legal counsel in light of the changes happening in the insurance industry.
Boards of directors should consider doing a risk assessment for this deductible exposure.
When doing so the board should consider the following:
How it will pay for deductibles if an insured peril occurs and the corporation is responsible for all or part of the deductible;
That it may not be able to rely on the Reserve Fund to carry out repairs and/or replacements. Often the damage occurs in the units and the Reserve Fund monies can only be used to repair and replace the common elements, not the units, and therefore may not be available for use;
The possibility of having to levy a special assessment at the time of the loss, which might not be the most prudent course of action. Special assessments are never well received by owners, and where possible, boards should try to take steps to plan ahead with a view to avoiding them;
The feasibility of establishing a “deductible reserve” for the eventuality of having to pay a large deductible; and,
Discussing this “deductible reserve” with the Corporation’s auditor. Together they should determine how to create it and in what account to hold it. It may be that a separate “deductible reserve” account should be established under the operating account umbrella. We believe that it should form part of the corporation’s operating funds as it will be easily accessible and not subject to Reserve Fund restrictions.
Part of the risk management assessment boards have to make should include:
Determining what steps, the corporation can take to minimize the risk of water damage and sewer backup, the two perils with the highest deductibles. The installation of water sensors and backflow preventers may be two of the actions which boards might take, if appropriate.
Contacting their insurers to determine what actions they can take to minimize the potential for water damage and that may provide the insurer an ability to reduce the applicable deductibles on further renewals.
Condominium Tip: Now is the Time to Pass an Electronic Voting By-law
The Government of Ontario’s recent Order in Council, about which we sent an SR Bulletin on Sunday April 18, 2020, allows corporations to either delay their AGM’s or hold their meetings electronically during the COVID-19 pandemic, without the need for a by-law authorizing same.
This right only exists during the pandemic so you should take this opportunity to enact a by-law allowing for meetings to be held virtually. You can enact and approve this by-law now if you are going to conduct a virtual meeting, or when the corporation holds its delayed AGM.
Let us know if you are interested in the by-law. The approval threshold for this by-law is a majority of units in attendance at the meeting provided there is quorum (25% of unit owners), rather than requiring a majority of the total number of units.
Now is the time to do this.