Strata Property Insurance: A Primer

Transcription

1 Strata Property Insurance: A Primer by Clark Wilson LLP

2 TABLE OF CONTENTS I. INTRODUCTION - STRATA II. III. OVERVIEW OF THE INSURANCE PROVISIONS OF THE STRATA PROPERTY ACT...2 INSURABLE INTEREST...2 IV. PROPERTY INSURANCE...3 A. Statutory Requirements...3 B. Replacement Value...5 C. Insured Perils...6 D. Issues for a Bare Land Strata...6 V. LIABILITY INSURANCE...7 A. Statutory Requirements...7 B. Named Insureds...7 C. Errors and Omissions Insurance...9 VI. DEDUCTIBLES IN THE STRATA SETTING...9 VII. PAYMENT OF INSURANCE PROCEEDS...11 VIII. TO REPAIR/REPLACE OR NOT TO REPAIR/REPLACE...11 IX. OTHER DUTIES OF A STRATA CORPORATION REGARDING INSURANCE POLICIES...13 A. Preservation Of Insurance Policies...13 B. Report On Insurance...13 X. UNIT OWNER INSURANCE...13 A. Statutory provisions...13 B. Contribution between Unit Owner and Strata Corporation Policies...14 C. Overlapping Liability Policy Issues...14 D. Overlapping Property Policy Issues...15 XI. SUMMARY...16

3 Strata Property Insurance: A Primer I. INTRODUCTION - STRATA 101 Condominiums are an increasingly popular form of home ownership, with owners concentrated in the census metropolitan areas of Quebec, Ontario and British Columbia. (1991 Census) 1 Given this recent trend the area of strata property insurance is increasingly relevant and important aspect of the insurance industry. A Strata Corporation is created to divide building(s) and/or a parcel of land into separate components individually owned and common components owned by all the owners. The individually owned components are referred to as strata lots and the commonly owned components are referred to as common property. An owner of a strata lot owns the following: In his or her strata lot a) usually a strata lot s boundaries are at the center of walls, ceilings and floors, but these boundaries will be different if the strata plan shows a different boundary. b) in a bare land strata plan, the strata lot will consist of the land and not the building situated on the strata lot; and, a share, as a tenant in common with other strata lot owners, of the common property and assets of the strata corporation based on their unit entitlement. 2 A Strata Corporation is a legal entity created under the Strata Property Act R.S.B.C c. 43 (the Act ) by the deposit of a strata plan in the Land Title Office who assigns a number to the strata corporation. The Strata Corporation is responsible for managing and maintaining the common property and common assets of the strata corporation for the benefit of the owners. 3 A Strata Council exercises the powers and performs the duties of the strata corporation. 4 In exercising and performing the duties of the strata corporation each council member must act honestly and in 1 Statistic s Canada 2001 Census Consultation Guide. 2 Superintendent of Real Estate Instruction Guide 5: The role and responsibilities of owners. 3 s. 3 4 s. 26

4 p. 2 good faith with a view to the best interests of the strata corporation and exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. 5 II. OVERVIEW OF THE INSURANCE PROVISIONS OF THE STRATA PROPERTY ACT Part 9 of the Act, in conjunction with the Strata Property Regulations B.C. Reg. 43/2000 (the Regulations ), spells out in greater detail the minimum types and levels of insurance that a strata corporation is required to obtain. Within a Strata Corporation, there are likely to be a number of insurance policies in place, obtained either by the Strata Corporation itself, or by its owners and occupants, which interrelate including: the Strata Corporation s own insurance policy (referred to in this article as Strata Corporation Policies ) the strata lot owner s insurance policy (referred to as Unit Owner Policies ) III. INSURABLE INTEREST Section 66 of the Act states that common property is owned by all the owners of strata lots, in a proportion based upon unit entitlement: Ownership of property 66 An owner owns the common property and common assets of the strata corporation as a tenant in common in a share equal to the unit entitlement of the owner s strata lot divided by the total unit entitlement of all the strata lots. By operation of insurance law, the Strata Corporation would not have an insurable interest in the common property. However, section 153 of the Act specifically provides that the strata corporation shall have an insurable interest in common property, common assets, buildings, and even fixtures built or installed on a strata lot, if the fixtures are built or installed by the owner developer as part of the original construction on the strata lot: Insurable interest 153 The strata corporation has an insurable interest in any property insured under section 149 or s. 31(a) and s. 31(b)

5 p. 3 It is by this avenue that the Legislature has ensured that strata corporation insurance will be available for damage to common property, assets, and in some circumstances, individual strata lots. IV. PROPERTY INSURANCE A. Statutory Requirements Section 149(1) sets out the scope of insurance coverage required to be obtained by the Strata Corporation and provides: Property insurance required for strata corporation 149 (1) The strata corporation must obtain and maintain property insurance on (a) common property, (b) common assets, (c) buildings shown on the strata plan, and (d) fixtures built or installed on a strata lot, if the fixtures are built or installed by the owner developer as part of the original construction on the strata lot. (2) For the purposes of subsection (1) (d) and section 152 (b), fixtures has the meaning set out in the regulations. Common Assets are defined under section 1(1) of the Act as: (a) personal property held by or on behalf of a strata corporation, and (b) land held in the name of or on behalf of a strata corporation, that is (i) not shown on the strata plan, or (ii) shown as a strata lot on the strata plan; Common Property is defined under Section 1(1) of the Act as: (a) that part of the land and buildings shown on a strata plan that is not part of a strata lot, and (b) pipes, wires, cables, chutes, ducts and other facilities for the passage or provision of water, sewage, drainage, gas, oil, electricity, telephone, radio, television, garbage, heating and cooling systems, or other similar services, if they are located (i) within a floor, wall or ceiling that forms a boundary

6 p. 4 (A) between a strata lot and another strata lot, (B) between a strata lot and the common property, or (C) between a strata lot or common property and another parcel of land, or (ii) wholly or partially within a strata lot, if they are capable of being and intended to be used in connection with the enjoyment of another strata lot or the common property; In order to determine whether a particular piece of property constitutes common property it is also necessary to look at the provisions in the Act which set out the boundaries of a strata lot. Section 68 provides that: Strata lot boundaries 68 (1) Unless otherwise shown on the strata plan, if a strata lot is separated from another strata lot, the common property or another parcel of land by a wall, floor or ceiling, the boundary of the strata lot is midway between the surface of the structural portion of the wall, floor or ceiling that faces the strata lot and the surface of the structural portion of the wall, floor or ceiling that faces the other strata lot, the common property or the other parcel of land. (2) If a strata lot is not separated from another strata lot, the common property or another parcel of land by a wall, floor or ceiling, the boundary of the strata lot is as shown on the strata plan. (3) A boundary shown on the strata plan must be shown in a manner approved by the registrar. (4) Despite subsections (1) to (3), but subject to the regulations, in the case of a bare land strata plan, the boundaries must be shown on the strata plan (a) by reference to survey markers, and (b) in compliance with regulations, if any, made by the Surveyor General. In Legault v. Torcan [1993] B.C.J. No (Prov. Court) the Court held that heating/airconditioning ductwork which ran directly from the heating/air conditioning unit, located within the owners unit to the outlets or registers which were all located within the unit and, being associated with and available exclusively for the benefit of the owners unit, were not common property. It is required that the Strata Corporation obtain insurance on common property, common assets, as well as any buildings shown on the Strata Plan. Further, the Strata Corporation is to insure any fixtures provided the fixtures were installed by the owner developer as part of the original construction. Regulation 9.1(1) defines fixtures to mean: For the purposes of sections 149 (1) (d) and 152 (b) of the Act, fixtures means items attached to a building, including floor and wall coverings and electrical and plumbing fixtures, but does not include, if they can be removed without damage to the building, refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items.

7 p. 5 B. Replacement Value Section 149(4) requires that the property insurance obtained be on the basis of full replacement value: (4) The property insurance must (a) be on the basis of full replacement value, and Strata Corporations should consider whether their replacement cost insurance policies need to be supplemented by a municipal building code coverage endorsement to ensure that insurance proceeds are sufficient to cover amended building code upgrade requirements. In Manhas vs Sovereign General Insurance 1999 BCCA 0162 the Municipality s building bylaws made it impossible for the insured to reconstruct the building after it was destroyed by fire, even though such repairs were physically possible. The policy contained a replacement cost endorsement but it also contained an exclusion denying coverage for: losses or increased costs of repair due to the operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services. In attempting to enforce coverage, the insured argued the exclusion was too vague to be effective. In respect of the measure of recovery, the insured argued that where the policy provided replacement cost coverage and where such repair or replacement was impossible for reasons beyond the insured s control, the amount payable by way of indemnity should not be the (lesser) actual cash value but rather should be the (higher) amount equivalent to the costs of repair or replacement. The Court of Appeal ruled that the exclusion contained no uncertainty or ambiguity: the purpose and effect of that phrase [the exclusion] is to exclude the loss due to the bylaw from the broad language of the Insuring Agreement. This means there are now two very clear rulings from the B.C. Courts that this exclusion excludes not only any increased costs of repair [Seivewright v B.C.I.C., (1989) 39 C.C.L.I. 145 (BCSC)] but indeed any loss attributable to a zoning bylaw that prevents rebuilding/replacement [Manhas vs Sovereign General, supra]. The Court of Appeal also ruled the policy required indemnity to be made on an actual cash value basis and not on the higher/replacement cost claimed by the insured. The policy wording was clear that if the building was not repaired or replaced, then settlement was to be made on an actual case value basis and the Court ruled this intention would prevail even though the repair/replacement was impossible due to factors beyond the insured s control.

8 p. 6 C. Insured Perils Section 149(4)(b) 6 requires that the Strata Corporation insure against major perils as set out in the Regulations which provide that: Definitions for section 149 of the Act 9.1 (2) For the purposes of section 149(4)(b) of the Act, major perils means the perils of fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft and vehicles, vandalism and malicious acts. [am. B.C. Reg. 265/2000.] Among the most notable perils not required to be insured against are Flood, Earthquake, Sewer backup and theft. However, section 152(a) permits the Strata Corporation to obtain coverage for further types of perils including those mentioned above. 7 A by-law enacted by the Strata Corporation to mandate coverage for further perils beyond the major perils listed in the act might read: The strata corporation must insure against major perils, as set out in regulation 9.1(2) including, without limitation, earthquakes and floods. D. Issues for a Bare Land Strata A bare land strata plan is defined in the Act under S. 1(1) as: (a) a strata plan on which the boundaries of the strata lots are defined on a horizontal plane by reference to survey markers and not by reference to the floors, walls or ceilings of a building, or (b) any other strata plan defined by regulation to be a bare land strata plan; The wording of Section 149 does not require a Strata Corporation to insure building on bare land strata lots unless the buildings are shown on the strata plan. 8 Further, Bare Land Strata Plans are specifically exempted from the requirement to obtain insurance for fixtures built or installed on a strata lot. 9 6 (4) The property insurance must (b) insure against major perils, as set out in the regulations, and any other perils specified in the bylaws The strata corporation may obtain and maintain insurance in respect of the following: (a) a peril or liability of the strata corporation that is not referred to in section 149 or 150; (b) fixtures built or installed on a strata lot that were not built or installed by the owner developer as part of the original construction on the strata lot. 8 s. 149(1)(c) 9 s. 149(3)

9 p. 7 However, Section 158(2) allows an owner in a bare land strata plan to obtain insurance: (2) Despite this Act, the Insurance Act or any other law, an owner of a strata lot in a bare land strata plan may obtain and maintain insurance on buildings or fixtures built or installed on the strata lot. V. LIABILITY INSURANCE A. Statutory Requirements Section 150(1) of the Act requires the Strata Corporation to obtain and maintain liability coverage as follows: Liability insurance required for strata corporation 150 (1) The strata corporation must obtain and maintain liability insurance to insure the strata corporation against liability for property damage and bodily injury. (2) The insurance must be of at least the amount required in the regulations. By virtue of Regulation 9.2, B.C. Reg. 43/2000 the Strata Corporation must have at least $2 million in liability insurance coverage. B. Named Insureds Section 155 of the Act designates certain individuals as named insureds under any policy obtained by the Strata Corporation: Named insureds 155 Despite the terms of the insurance policy, named insureds in a strata corporation s insurance policy include (a) the strata corporation, (b) the owners and tenants from time to time of the strata lots shown on the strata plan, and (c) the persons who normally occupy the strata lots. The inclusion of owners, tenants and persons who normally occupy the strata lots have implications with respect to the extension of coverage under the Strata Corporations Liability policy. In Ghag Enterprises Ltd. v. Strata Corp. K-68 (1992) 12 C.C.L.I. (2d) 49 (BCSC) Ghag was the owner of a town house unit in the Strata K-68 complex and rented the townhouse to tenants whose young daughter was injured when she fell off of her bicycle because of a deep indentation

10 p. 8 in the driveway. The driveway was common property reserved for the exclusive use of the rented townhouse. In a separate action both Ghag and the Strata Corp. K-68 were found liable for the injury. Ghag sought coverage under the Strata Corporation s policy. The Court held that: In this case, the insurance provided for the payment of damages if the strata corporation was found negligent with respect to someone s injury. Section 54(3) of the Condominium Act 10 extends that coverage to an owner such as Ghag. He is therefore covered by the policy of insurance. Extending coverage to owners and tenants as named insureds has the effect of protecting them at common law from subrogated suits by the insurer for a negligent act which caused the loss. In addition, some policies contain a specific waiver of subrogation provision. For example much condominium insurance is obtained through a program available to the Association of British Columbia Property Managers. It is a manuscript policy (albeit with pretty standard wordings) which is underwritten by several different insurers and contains the following waiver of subrogation provision: Except with respect to arson, fraud or vehicle impact, the Insurer agrees with the Insured to waive its right of subrogation as to any claim against: I. the Strata Corporation, its directors, property managers, agents and employees; and II. the unit owners and if residents of a unit owners household, his spouse, the relatives of either and any other person under the age of 21 in the care of a unit owner or their spouse. A further effect of the named insured provision is to protect a unit owner or tenant from third party proceedings in an action brought by the Strata Corporation. It is the clear law of British Columbia that third party contribution proceedings under the Negligence Act R.S.B.C c. 333 cannot be brought by a defendant against a third party who is immune from liability to the plaintiff: Orange Julius Canada Ltd. v. Surrey 2000 B.C.C.A In the Orange Julius case a waiver of subrogation was contained in a lease. The tenants sued various defendants following a fire in a shopping mall. The landlord was not named as a defendant (because of the waiver of subrogation) however, the defendants brought third party proceedings against the landlord claiming contribution or indemnity. The Court of Appeal held that the landlord was immune 10 Decided under the wording of the Condominium Act R.S. c. 61 which provided that: 54.(1) The Strata Corporation (a) shall obtain and maintain insurance for the buildings, common facilities and any insurable improvements owned by the Strata Corporation to their replacement value against fire, and against other perils as are usually the subject of insurance in respect of similar properties; and (b) may obtain and maintain insurance against other perils including liability to the amount it considers advisable. (3) notwithstanding the terms of the policy, (a) the Strata Corporation; (b) the owners and tenants, from time to time of every strata lot shown on the strata plans; and (c) all persons normally occupying the strata lot. shall be deemed to be included as named insured on a policy of insurance in force under subsection (1).

11 p. 9 from the plaintiff s claims, that third party proceedings were not appropriate in such circumstances, and that the Third Party Notice should be struck out. C. Errors and Omissions Insurance Section 151 provides that a Strata Corporation may obtain E&O coverage for council members: Errors and omissions insurance 151 The strata corporation may obtain and maintain errors and omissions insurance for council members against their liability and expenses for errors and omissions made in the exercise of their powers and performance of their duties as council members. Council members must act honestly and in good faith with a view to the best interests of the Strata Corporation. 11 In doing so they must exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. 12 While the Act mandates a standard of care for council members the standard by-laws contained in the Act state that: 22(1) A council member who acts honestly and in good faith is not personally liable because of anything done or omitted in the exercise or intended exercise of any power or the performance or intended performance of any duty of the council. In Strata Plan NW3341 Riverwest v. Royal Insurance Co. of Canada [1996] B.C.J. No. 618 (BCSC) part of the allegations in the underlying action were that a member or members of the Strata Corporation had discussions with the prospective purchasers of the plaintiff s property which caused the sale to fail to complete. Even though the underlying action was framed against the Strata Corporation rather than individual council members coverage was found by the Court under the Strata Corporations directors and officer s liability portion of the policy. VI. DEDUCTIBLES IN THE STRATA SETTING Section 158 of the Act provides that the payment of a deductible necessitated by a claim under a Strata Corporations Insurance Policy is to be treated as a common expense: 158 (1) Subject to the regulations 13, the payment of an insurance deductible in respect of a claim on the strata corporation s insurance is a common expense to be contributed to by means of strata fees calculated in accordance with section 99 (2) or 100 (1). Therefore all owners are required to contribute to the cost of the deductible in accordance with unit entitlement. Approval of the owners is not required to pay the deductible by way of funds raised by special levy or taken from the contingency reserve fund s. 31(a) 12 s. 31(b) 13 to date no regulations have been passed under this section 14 S. 158(3)

12 p. 10 Under Section158 (2), however, the Strata Corporation can seek to recover the deductible portion of an insurance claim from an owner responsible for the loss: (2) Subsection (1) does not limit the capacity of the strata corporation to sue an owner in order to recover the deductible portion of an insurance claim if the owner is responsible for the loss or damage that gave rise to the claim. The recent leading court case on the subject is The Owners, Strata Corporation VR 2673 v. Commissiona et al BCSC The Court stated at paragraph 22 of the decision: In my view, section 158(2) does not create a right in the strata corporation to sue an owner; rather, it does not limit the capacity of the strata corporation to do so. Section 158(2) does not change the law. It sets out expressly what was not previously addressed by legislation (the Condominium Act), but was governed by common law. Whether a strata corporation can maintain such an action must be determined by all of the provisions of the applicable statute and the bylaws, rules and regulations of the strata corporation. The Reasons in the Commissiona case are very clear that when taking action against an owner on an insurance deductible, one can look to section 158(2), but that is not an end to it. One can, and must, also look at the bylaws of the individual strata corporation. In the Commissiona case there was a rule that expressly provided that damage to common property caused by the negligence of the owner would be charged to the owner of strata lot. A sample by-law making responsible owners liable for the deductible portion of the Strata Corporations loss might read: An owner shall indemnify and save harmless the strata corporation from the expense of any maintenance, repair or replacement rendered necessary to the common property, limited common property, common assets or to any strata lot by the owner s act, omission, negligence or carelessness or by that of an owner s visitors, occupants, guests, employees, agents, tenants or a member of the owner s family, but only to the extent that such expense is not reimbursed from the proceeds received by operation of any insurance policy. In such circumstances, and for the purposes of bylaws 4.1, 4.2 and 4.3, any insurance deductible paid or payable by the strata corporation shall be considered an expense not covered by the proceeds received by the strata corporation as insurance coverage and will be charged to the owner. It should be noted that, although a tenant is named insured on a Strata Corporations Policy, 15 Section 158(2) refers only to claims brought against an owner to recover the deductible portion of the loss and not claims brought against a tenant. In Comissiona, supra, the Court considered the common law authorities and held that there is no legal bar to an action by a strata corporation against an owner of a suite in the condominium for damages that are covered by the strata corporations insurance policy but are not payable by the insurer because they fall within the deductible under the policy [para 16]. Presumably the same reasoning would apply to tenants. 15 s. 155(b)

13 p. 11 VII. PAYMENT OF INSURANCE PROCEEDS The procedure for payment of proceeds of an insurance claim is set out in Section 156 of the Act refers which states that an insurer must make payment: 156 Despite the terms of the insurance policy, in making a payment, other than a payment arising from the liability of the strata corporation, under the strata corporation s insurance policy, an insurer must make the payment (a) to the order of the insurance trustee designated by the bylaws, or (b) if an insurance trustee is not designated, to the order of the strata corporation to be held in trust until paid out under section 157. The Act does not provide any guidance as to the duties, functions or powers of an insurance trustee. VIII. TO REPAIR/REPLACE OR NOT TO REPAIR/REPLACE If the Strata Corporation receives any money from the insurance company, section 157 of the Act provides that any insurance money received must be used without delay to repair or replace the damaged property: Application of insurance money 157 Insurance money received under section 156 with respect to damaged property must be used to repair or replace the damaged property without delay unless the strata corporation decides not to make the repair or replacement under section 159. There is one exception to this statutory requirement, that being the passage of a ¾ vote resolution by the owners not to repair or replace the damaged property under section 159 of the Act. That vote must be held within 60 days of the receipt of the insurance money by the Strata Corporation. Section 159 provides: Decision not to repair or replace 159 (1) The strata corporation may, by a resolution passed by a 3/4 vote at an annual or special general meeting held no later than 60 days after the receipt of the money referred to in section 156, decide not to repair or replace the damaged property. (2) Subject to section 160, if the strata corporation decides not to repair or replace the damaged property, the insurance trustee or the strata corporation that receives the payment under subsection (1) of this section holds the money and any interest on the money in trust for each person who has an interest in the money, including the holder of a registered charge, and (a) must distribute the money according to each person s interest, or

14 p. 12 (b) if an application is made under section 160, must distribute the money in accordance with the order made under that section. If a decision is made not to repair or replace, the insurance money is held in trust by the Strata Corporation for the benefit of the owners in accordance with unit entitlement. Under Section 160 a resolution not to repair or replace is subject to review by the Supreme Court upon application by an interested person, including the Strata Corporation s own insurer: 160 (1) If the strata corporation decides not to repair or replace the damaged property and the strata plan is not cancelled, any of the following persons may apply to the Supreme Court for an order under this section: (a) an owner; (b) the holder of a registered charge against a strata lot; (c) an insurer of land shown on the strata plan; (d) any other person the court considers an appropriate person. (2) On application by a person referred to in subsection (1), the court may, by order, implement a scheme to do one or more of the following: (a) rebuild some or all of the damaged property or to make some other use of the land; (b) provide for the interests of the owners and registered charge holders on a just and equitable basis. (3) The court may make any order it considers advisable to give effect to the scheme, including, without limitation, orders with respect to (a) the payment of insurance money received by the strata corporation, (b) the discharge of the liabilities of the strata corporation, the persons liable to contribute to the discharge and their share of the liability, (c) the amendment of the strata plan, (d) the transfer or conveyance of the interest of owners whose strata lots have been wholly or partially destroyed to the other owners in proportion to the unit entitlements of the strata lots of the other owners, and for the compensation of the owners whose interests have been transferred or conveyed, (e) the sale of land shown on the strata plan, or the sale of the common assets, and (f) the distribution of any of the common assets of the strata corporation

15 p. 13 This ability of the Strata Corporation to elect not to repair or replace raises the question of whether an insurer is obligated to pay the to the full replacement value or lower actual cash value. Most insurance policies wording is such that if replacement is not made the insurer pays out the actual cash value of the damaged property. It is a generally accepted insurance principle that insurers are not obligated to pay the replacement cost unless or until the replacement is complete. [Carlyle v. Elite Insurance [1986] B.C.J. No. 135 (BCCA) ; Anastasov v. The Halifax Insurance Co. [1987] B.C.J. No (BCCA)] The decision of a Strata Corporation to elect not to repair/replace as authorized under s. 159 can only be exercised 60 days after receipt of the insurance proceeds. Theoretically a Strata Corporation may not be entitled to any proceeds until they actually replace the damaged property making the procedure outlined in s. 159 impossible to comply with. IX. OTHER DUTIES OF A STRATA CORPORATION REGARDING INSURANCE POLICIES A. Preservation Of Insurance Policies As a written contract to which the Strata Corporation is a party, an insurance policy is a record which must be maintained by the Strata Corporation in accordance with section 35(2)(g) of the Act. Regulation 4.1(7)(b) requires the Strata Corporation to retain a copy of any insurance policy for at least six years from the date of expiry of the policy. B. Report On Insurance Section 154 requires that the Strata Corporation review annually the adequacy of the strata corporations insurance and report on the insurance coverage at each annual general meeting. X. UNIT OWNER INSURANCE A. Statutory provisions Section 161 of the Act specifically contemplates that an owner may obtain his or her own insurance to cover those risks not covered by the Strata Corporation Policy: 161 (1) Despite the Insurance Act or any other law, an owner may obtain and maintain insurance for any or all of the following: (a) loss or damage to the owner s strata lot and the fixtures referred to in section 149(1)(d) (i) against perils that are not insured by the strata corporation, and (ii) for amounts that are in excess of amounts insured by the strata corporation;

16 p. 14 (b) fixtures in the owner s strata lot, other than the fixtures referred to in section 149(1)(d); (c) improvements to fixtures referred to in section 149(1)(d); (d) loss of rental value of the owner s strata lot in excess of insurance obtained and maintained by the strata corporation; (e) liability for property damage and bodily injury, whether occurring on the owner s strata lot or on the common property. B. Contribution between Unit Owner and Strata Corporation Policies Section 162 sets out a scheme of contribution between Unit Owner and Strata Corporation Policies: Contribution 162 Despite the terms of the insurance policy, (a) neither the strata corporation s insurance policy nor an owner s insurance policy is liable to be brought into contribution with another policy unless the other policy is issued on the same property, and (b) neither the strata corporation s insurance policy nor the owner s insurance policy is other insurance in relation to another policy unless the other policy is issued on the same property. The attempt of this section to avoid an overlapping coverage situation which can arise in both property and liability insurance situations. C. Overlapping Liability Policy Issues The effect of Section 162 is a statutory overriding of any potential arguments the owners insurance (assuming it was not issued on the same property) would otherwise be able to make with respect to any other insurance clauses which may be found in the policy wordings. The leading case with respect to other insurance clauses is the Supreme Court of Canada decision of Family Insurance Corp. v. Lombard Canada Ltd SCR 48. There the Supreme Court specifically addressed the approach to be taken in overlapping coverage cases, and expressly endorsed the traditional method of resolving overlapping coverage disputes. Under this approach, each policy is examined independently as between insurer and insured, and only in the event that each policy would provide primary coverage in the absence of the other, will the other insurance clauses come into play. At that stage, if it is found that the enforcement of both other insurance clauses would result in the absurdity of an insured, who has paid premiums to more than one insurer, being deprived of coverage altogether, the other insurance clauses will be held to be mutually repugnant. In such a case, the mutually repugnant clauses will be held to cancel each other out, resulting in a sharing of the loss by both (or all) insurers on

17 p. 15 an equitable basis. Generally speaking, the sharing formula will be determined on an independent liability basis, with equal sharing up to the limits of the lowest policy. If there are more than two competing policies, the remaining insurers, after the lowest limit is exhausted, will then share equally up to the next lowest policy limit, and so on. D. Overlapping Property Policy Issues On the property insurance front the Insurance Bureau of Canada has instituted guidelines contained in the Agreement of Guiding Principles (Property Insurance) (the Agreement ) to avoid conflict between owner and Strata Corporation polices. A complete list of Insurance Bureau of Canada members can be found at Rule 10 of the Agreement provides: Rule 10: BUILDING INSURANCE AND CONTENTS INSURANCE WHEN BUILDING OWNER OCCUPIED OR BUILDING IS A CONDOMINIUM (2) When the building is a condominium (i) the condominium corporation policy shall, after allowing for the application of any coinsurance provision, pay (a) if the policy is on a replacement cost basis, the amount required to restore the fixtures and fittings originally installed in the individual units; or, (b) if the policy is on an actual cash value basis, the actual cash value of the fixtures and fittings originally installed in the units and the items specified in paragraphs (I) to (v) of Subsection (1) are deemed to be insured by the condominium corporation policy except to the extent specified in paragraph (ii) of this Subsection (2); (ii) the unit owner s policy shall pay either on a replacement cost basis or an actual cash value basis, as the case may be, for all improvements or betterment s to the individual unit made or acquired by the unit owner including any excess cost in respect of permanent fixtures and fitting referred to in (2)(I) above where such has been occasioned by the unit owner or predecessor in titled substituting such original permanent fixtures and fittings with others of improved quality or enhanced value such as floor or wall coverings; In addition to the Agreement, or if the respective insurers are not signatories to the Agreement, consideration must be given to the policy wordings to see if overlap can be avoided. For instance a standard term in a Unit Owner s policy might cover fixtures unless those items were built or installed by the owner developer as part of the original construction.

18 p. 16 XI. SUMMARY It was the goal in government that the Act would lay the foundation for a fair and workable system for the ownership and management of strata property in British Columbia. 16 The Part 9 insurance provisions represent an attempt to clearly state and balance the duties and responsibilities of all those involved with insurance in a strata setting; the Strata Corporation, the Unit Owners and the insurer. By defining the scope and breadth of mandatory insurance requirements by the Strata the Act removes any uncertainty as to the Strata Corporations responsibilities and provides guidance to Unit Owners in the permissive language regarding owner s insurance. Insurers are also given a voice in the Strata Corporations decision to repair or replace. However, an unintended consequence of the guidance given is the potential for overlap between Strata Corporation and Unit Owner insurance polices. An overlap which has yet to be judicially addressed and clarified. In all, the Act sets out a comprehensive framework within which the matrix of general insurance principles can be brought to bear on the very unique Strata situation. Strata Property Insurance: A Primer CWA Hansard, 1998 Legislative Session: 3rd Session, 36th Parliament