How liability for deductibles on strata claims is changing

Billy Xiong Asserted: How liability for deductibles on strata claims is changing

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Strata unit owners might see a reduction in liability risk for common-area damage if a recently-tabled bill is passed in British Columbia.

“Right now, if a water pipe bursts in a bathroom due to manufacturer error and leaks beyond common property into other units, a strata corporation may sue the owner of the unit where the pipe burst originated to recover the full deductible cost,” a B.C. government spokesperson told Canadian Underwriter Thursday. “With strata corporation insurance deductibles rising to hundreds of thousands of dollars, it can leave individual strata owners at risk of bankruptcy or foreclosure in some cases.”

To address this issue, Municipal Affairs and Housing Minister Selina Robinson tabled Bill 14 on June 23. If passed into law, Bill 14 would change the Strata Property Act to protect unit owners against large lawsuits from strata corporations in cases where the unit owner was legally responsible for a loss or damage through no fault of their own, Robinson told the legislature at the time.

Bill 14 would also give the province the ability to set a maximum dollar amount that an individual can be asked to pay toward a deductible on a claim where common property is damaged due to a problem from within the unit, the provincial government spokesperson said. “Any remaining portion of the strata corporation’s deductible would then be raised from all owners via a special levy or through the strata’s contingency reserve fund.”

News of the bill was well-received by the Insurance Bureau of Canada.

A strata corporation could have deductibles for its property insurance amount to hundreds of thousands of dollars, said Rob De Pruis, IBC’s director of consumer and industry relations, western.

“Based on their bylaws they could be assessing that full deductible against the unit owner, and the unit owner might not have that protection,” De Pruis said in an interview.

An example of where this could be an issue is when a washing machine leaks, said De Pruis. The water could flow through the floor into a unit below, affecting two units plus common property in between.

“So Bill 14 allows for the creation of some clear guidelines for the corporations and the unit owners and provides some clarity for everyone, making a cap against those particular financial assessments,” De Pruis said of strata corporations charging unit owners for the deductible on common property damage.

“The issue with water damage claims in high-rise residential buildings is that, once the flood occurs, the water damage can affect all units below,” said Sam Biglou, a Toronto-based litigation lawyer with Mason Caplan Roti LLP, whose practice includes subrogated claims.  Biglou’s comments are not intended as legal advice and she is not commenting specifically on the British Columbia market.

With a plumbing failure, water continues to flow until the origin is located and the water source is turned off, Biglou told Canadian Underwriter.

“Often in high-rise residential building cases, the discovery of the flood is a major impediment to mitigating the water damage.  Unless the occupant of the unit is home at the time of the origin of the flood, the source of the flood is often undetected until it is subsequently discovered, say by another unit that is affected.”

But it can still take some time to figure out the unit from which the flood came. The investigation becomes more complex in cases where the source of the flood is behind an enclosed area such as a wall, said Biglou.

Insurers are struggling to make a profit on B.C. strata coverage, according to interim findings released in June by the B.C. Financial Services Authority.

The average reported combined ratio in the B.C. strata market was just over 100 in 2019, close to 100 in 2018 and over 100 for 2017, FSA CEO Blair Morrison wrote in a June 16 letter to Finance Minister Carole James.

A key driver of those losses is water damage from plumbing leaks and failures. This accounted for about 46% of the total claim costs since 2017 (56% alone in 2018), Morrison noted in the interim report.

Among other things, the changes proposed in Bill 14 include:

  • guidelines to require strata corporations to inform owners about any changes to their insurance coverage and provide notice of any policy changes, including any increases in deductibles; and
  • prohibiting strata property managers and other third parties from collecting referral fees from insurers or brokers.

 

Feature image via iStock.com/powerofforever

Jonathan Cartu

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