Is Your Condo Unit Adequately Insured?

Is your condo unit adequately insured? The answer may be found in your condo by-laws and declarations.

Determining the amount of coverage one will need under a typical Homeowners policy for a freehold home is usually a fairly straightforward process. In general one simply needs to consider the market value of the home and the actual cash value or the replacement value of its contents, depending on the level of protection sought.

The task of selecting appropriate policy limits for a condominium unit owners’ policy is far less straightforward. Most condo owners are aware that the condo corporation is required to maintain insurance on the building or buildings that form part of the condominium. As insurance brokers commonly refer to unit owners insurance as “contents” insurance, many unit owners incorrectly believe that the insurance purchased by the condo corporation will cover everything except what is found in the space between the walls and ceiling. They, therefore, assume that they only need sufficient policy limits to cover their furniture and personal effects. Such a view is not necessarily accurate and may lead to a condominium owner finding himself or herself underinsured if they are faced with major disaster. The reason for this is that the Condominium Act, which governs the condominium corporation’s obligation to insure the individual condo units, allows the condo corporation some discretion in defining their obligation to insure.

Although Condominium corporations are required to maintain insurance for damage to both the common elements and individual units that is caused by “major perils” (which includes fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts), the corporation is not required to obtain coverage for improvements made to the “standard unit”. The boundaries of this “standard unit” are usually defined by the corporation itself. For condominiums registered after May 5, 2001, the “standard unit” is defined by the condominium corporation through a corporate by-law or in a schedule given to the corporation by the developer. Without reviewing these documents, therefore, it is not possible for a unit owner to be certain of what parts of his or her condo unit are insured by the condo corporation’s policy.

Let us take, as an example, a basement that was beautifully finished by the builder using top-of-the-line hardwood flooring, drywall and wood trim. Most condo unit owners would be tempted to assume that, because it was finished by the builder, the basement finishes are part of the “standard unit” and is insured by the condo corporation’s insurance policy. This is not necessarily the case. Through its by-laws the condo corporation may choose to remove the finishes found in the basement, including flooring and drywall, from the standard unit definition. One reason for a condo corporation to do so is that other units in the property may not contain finished basements. As the condo corporation’s insurance premiums are paid through maintenance fees collected from all unit owners, it may be deemed unfair by the condo board to force all unit holders to foot the bill for insurance coverage that could only benefit one unit owner.

As such if a major disaster, such a fire, was to destroy the condo unit with the beautifully finished basement, the unit owner may find that the policy limits on his or her ‘contents’ insurance are not high enough to allow for the restoration of the basement to its former glory. It is important, therefore, to periodically review your condo declarations and by-laws and to discuss the same with your insurance broker to determine what additional coverage is needed in order to fully protect your property.

D. Dean Obradovic
Civil Litigation