Windsor Garden for many years had a very traditional price for strata insurance coverage. Suddenly things changed. Insurance rates went through the roof, requiring a special levy just to pay the premiums. What happened?
Stratas are required by law to have full insurance coverage. This looks after the value of the common property, protecting the owners from damage to the exterior of their units and other areas of the complex. Owners are responsible for insurance covering the interior of their units, including theft, water damage, fire, and so on.
In British Columbia, there are only a few insurance brokers who cover stratas. That’s because coverage is very complex due to the number of issues involved, such as when claims are the responsibility of the strata insurance vs. the responsibility of an individual owner.
How strata insurance works
Here’s an example: you have water damage. What caused the leak will determine whose responsibility it is. If another owner overflowed their bathtub and the water ran into the neighboring unit, the owner’s insurance will cover that damage. But if it was the result of a leaky roof, things get complicated. Damage to the ceiling would be the responsibility of the strata (attics are considered common property), but damage inside the unit, even though it was caused by the roof (common property), is still the responsibility of the owner. Everything inside the envelope of the building is the owner’s responsibility.
This is why it’s so important for owners to have the right coverage, including special coverage to make up the difference between the very high deductible of the strata insurance and the amount you can afford to pay.
The strata insurance might have a deductible of $25,000 for water damage. Do you really want to be responsible for that much in deductible before the insurance takes over? If you want your deductible to be something more reasonable, like $5,000, you need to get special insurance to make up that gap.
Depending on the level of deductible, it may or may not even involve your insurance coverage. For example, if your deductible is $5,000 and the repairs cost $4,000, then insurance wouldn’t get involved. This means that even if there’s a potential claim, it might not become a claim. That’s actually a good thing, because every claim can raise everyone’s insurance costs.
Insurance industry competition led to unreasonably low strata premiums
A number of years back, several insurance companies thought strata insurance would be highly lucrative and went on a discounting spree to fight for industry dominance. That came to a sudden end when there was a flurry of leaky condo issues and insurance companies had to pay out millions of dollars in damage across the province. Suddenly they didn’t want to insure stratas at all unless they could be sure it was a safe investment, with minimal risk.
The tables had turned. Strata insurance rates went up dramatically. Previous rates had been set artificially low during that battle for market share, and now they were set at more realistic levels.
The insurance premiums for Windsor Garden increased substantially as well.
Lawsuit causes major disruption
A previous council needed an official roofing deficiency report when they were preparing to sue the vendor who had installed the deficient roof. This deficiency report became an iron weight that dragged the strata into controversy and dramatically increased costs. Here’s why:
Under the law, insurance companies can void insurance coverage if you leave out information that they consider to be relevant to coverage. It’s referred to as “material facts.” For example, if you have cancer and you get life insurance, the insurance company will review your history before they pay out. When they see that you had cancer and failed to mention that material fact in your application, your entire policy is null and void.
This put council in a difficult position. If council failed to send the roofing report when asking for a quote, the insurance they received could be rendered void. So our property manager felt it was essential to include it. My view is that she should have asked council about this, but we understand the reasoning. We can hardly expect the PM to ask council if they want us to do something illegal! But doing so gave insurance companies an excuse to charge outrageous fees. The roofing deficiency report showed a damning lack of quality that insurers took to be worse than the old roof. Out of 17 companies who cover stratas of our size, only one even agreed to provide coverage, and they increased the premium fee by a staggering 100%!
Believe it or not, it got worse. The one company still willing to insure the complex at an outrageous fee suggested that they might pull our coverage altogether. All this because of a deficiency report which had been designed to show how incompetent the roofer had been. A domino effect.
A solution is found
One council member suggested that he might be able to find another broker. Council encouraged him to contact other companies to see if he could find one that wouldn’t look at the deficiency report in such a negative light.
Eventually he found a broker on Vancouver Island who was able to obtain coverage at a reasonable fee. The underwriters were given the roofing report, but the broker argued on behalf of the strata that since the complex would be getting a new roof in the coming year, they should honor the low quote they gave. The underwriters agreed.
Sadly, that same council member then threw the entire council under the bus by suggesting that he had done this against the wishes of council, which was completely false. He even failed to tell council that he had found a better quote until immediately before the SGM, surprising everyone. At the SGM he handed out the quote in printed form, a quote that even the council members had not seen. This behavior was completely unnecessary, creating conflict within the community that continues years later.
The insurance fees are back to normal, but the issue with the roof still exists. Roofing deficiencies are causing water to run off the shingles and under the fascia boards, causing water ingress, rot, mould and other problems. The roof will need to be addressed before too long to avoid major problems with the building envelope.
