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January 15, 2010 Michael D. Pascu
Posted in General Interest

Insurance Deductibles: Who must pay them?

There is a perception that the unit owners who are "at fault" for causing the insured damage are always responsible to pay the insurance deductible amount. The reality is that, in many cases the "at fault" unit owner may not be responsible for any portion of the insurance deductible amount. How is that possible? Consider the scenario below.

A common situation involves a unit owner blocking a sink or toilet which results in an overflow of water into the unit.  The flood however causes either minimal damage or no damage to the unit of the "at fault" owner, but causes damage to the common elements and other units located directly below.

Clearly whether the repair cost is insured against by the corporation's insurance policy or not depends (at least in the first instance) on whether the repair cost is above or below the insurance deductible amount.

If the total cost to repair the flood damage is higher than the corporation’s insurance deductible, then the corporation must apply its insurance to cover the repair cost and may only look to the "at fault" owner to pay the insurance deductible. This is where problems may arise.

The first problem is that, under Section 105 (2) of the Act, the corporation may add to the common expenses payable by the "at fault" unit owner only those costs incurred to repair his or her unit (up to the deductible limit). For example, if the cost to repair the unit of the "at fault" unit owner is less than the amount of the insurance deductible, then only the actual amount incurred to repair the unit can be added to that unit’s common expenses and the remainder of the cost (up to the deductible limit) would have to be absorbed by the corporation. In cases where the unit of the "at fault" owner suffered no damage, the corporation would not be able to collect any portion of the insurance deductible from the "at fault" owner.

The second problem is that Section 105 (2) of the Act requires the corporation to establish that the flood damage was in fact caused by an “act or omission” of the owner. In those cases where the source of the blockage cannot be identified, the corporation would probably not be able to obtain the evidence necessary to prove the "act or omission". If the corporation proceeds in such cases to add the insurance deductible amount to the common expenses payable by the "at fault" owner and then to lien the unit to collect same, the corporation would be taking a risk that the lien may be subsequently invalidated if a legal challenge is mounted. If the lien is invalidated, the corporation would not only be required to absorb the original legal costs to register the lien, but also the legal costs to defend the owner's action and probably the owner's legal costs as well.

There are therefore potential situations where, either because the flood damage did not actually affect the unit of the "at fault" owner or because the corporation is unable to prove the "act or omission" of the "at fault" owner, the corporation will be unable to collect any portion of the insurance deductible amount from the "at fault" owner.

Is there a way to address such potential situations? Yes. The corporation may pass an insurance deductible by-law under Section 105(3) of the Act, which would make the owner of the unit from where the flood originated responsible to pay the entire cost of the flood repair, up to the insurance deductible amount, irrespective of which portion of the building was damaged, as long as the flood was not the result of any act or omission of the corporation. Such insurance deductible by-laws are so useful, it is hard to believe that many condominium corporations still do not have them.

 

Michael Pascu

Michael D. Pascu Lawyer

B.A., LL.B., ACCI

mpascu@finedeo.com
905.760.1800 x243
905.760.0050

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