Over a recent lunch, an acquaintance told me about how he received a notice from his condominium board to review his insurance, due to legislative changes. The acquaintance told me that he trashed the notice, but since he knew I practice condominium law, he asked me about it anyway. I told him to talk to his insurance broker about getting better insurance coverage right away. In this posting, I explain why.
As of January 1, 2020, changes to Alberta’s Condominium Property Regulation (CPR) have some important ramifications for condominium unit owners. CPR section 62.4 (the text is at the end of this post) allows a condominium corporation to charge the corporation’s insurance deductible to a unit owner. There are steps that condominium unit owners can take to protect themselves from increased financial risks due to this provision.
By way of providing full disclosure to readers, I worked with the Government of Alberta and contributed to its condominium legislation, before joining Parlee McLaws LLP this year (2020). However, the opinions expressed in this posting are my own.
I prepared this posting to provide public information that a point in time, and it is not legal advice. I recommend that any person who wants to know how to protect him or herself, or who is involved in an insurance claim, including a condominium corporation, unit owner, or other person who is potentially fully or partially responsible for damage to condominium corporation-insured property, consult with their own independent legal advisor for advice tailored to their specific situation.
If you would like to retain me at Parlee McLaws LLP for this purpose, or for advice or services relating to condominium law generally, contact me here. However, unless you agree to hire me through Parlee McLaws LLP, and we agree to work for you, we are not your lawyers.
Background to CPR Section 62.4
In terms of background, all condominium corporations are obligated to buy insurance coverage by Alberta’s Condominium Property Act (the subtleties of this topic may be the subject of a future post). Because condominium corporations have to pay for insurance premiums, and condominium corporation unit owners have to pay fees to cover those premiums, there is usually pressure on condominium boards to keep the corporation’s insurance premiums low. One solution, adopted by many condominium corporations, is to accept a policy with an insurance deductible that is relatively high – far higher an amount than would be common for most residential insurance policies. Anecdotally, I have heard that some insurance deductibles for condominium corporation policies have reached six figure amounts.
When these policies became the subject of an insurance claim, some condominium corporations’ bylaws allowed the corporation to require an owner to compensate the corporation for its insurance deductible. A recent case involving a dispute over whether the owner was liable to pay the corporation’s insurance deductible was Owners: Condominium Plan No. 7721985 v Breakwell, 2019 ABQB 674. There, Justice Mandziuk found that the unit owner was liable to pay the condominium corporation an amount equal to the corporation’s insurance deductible.
However, not all condominium corporations had bylaws that allowed for chargebacks. On the other hand, some bylaws may not have had any limit on the amount that a condominium corporation could charge back to a unit owner. The difference between bylaws had potentially significant consequences:
• Conceptually, a very large condominium corporation could have an insurance policy for a hundred million dollars’ worth of insured property, with a $1 million deductible. In the event of an insurance claim, if the corporation’s bylaws were written to allow it, the condominium corporation could have charged that million dollar deductible to one owner, making that owner shoulder the entire costs of a deductible that the owner had little or no say over setting.
• However, an otherwise identical condominium corporation, with comparable insured property with a similar insurance deductible, having made a similar claim but without the same bylaws, could not have required a unit owner to pay anything for the same $1 million deductible. Instead, all other owners would have paid their portion of it. Clearly, the substance of the two condominium corporation’s bylaws would have made a big difference!
Effective January 1, 2020, CPR section 62.4 levels the playing field between the two hypothetical condominium corporations. While the new provision may be functionally restrictive on condominium corporations whose bylaws had no limits on insurance deductible charge backs to unit owners, CPR section 62.4 opens new possibilities for condominium corporations which could not – and correspondingly it creates new risks for unit owners in those latter types of corporations.
What Every Unit Owner Should Know
Regardless of what a condominium corporation’s bylaws say, CPR section 62.4 allows a condominium corporation to charge a unit owner for the condominium corporation’s insurance deductible, in an amount up to $50,000, if certain criteria are met:
• The condominium corporation has to make a claim against its insurance for damage;
• The condominium corporation has to pay an insurance deductible;
• The damage originates in the owner’s unit or an exclusive possession area assigned to the unit owner (such as a balcony or parking stall);
• The condominium corporation was not negligent in allowing the damage to occur;
• The damage was not caused by a construction defect or normal structural deterioration of the common property, the managed property or the real property of the condominium corporation.
Based on how CPR section 62.4 has been drafted (and I note that it has not yet been the subject of a court’s interpretation), a unit owner is “absolutely” liable for the damage that originates in the owner’s unit. Another way to describe it is to say that the owner is unconditionally liable for the damage. The concept of absolute liability was described in the Supreme Court of Canada decision, R. v. Sault Ste. Marie, 1978 CanLII 11 (SCC),  2 SCR 1299. While this decision refers to types of offences, and CPA section 62.4 obviously doesn’t establish an offence, the linguistic concepts are the same.
Importantly, the effect of this language is that the unit owner likely cannot claim the defence of “due diligence”. That means that an owner may be responsible for causes of damage to the corporation’s property even the owner was not negligent. This is important because the unit owner would likely not avoid liability by claiming that an accident happened even though the owner was careful.
For example, where personal property or appliances in the unit unexpectedly fail, including a washing machine, dishwasher, fridge, toilet, stove, fireplace, electrical device, or even a motor vehicle (in a parking stall), industrial property in a commercial condominium unit, that property failure may result in damage to the condominium corporation’s insured property. Alternatively, of course, an owner’s tenant may negligently cause damage to the condominium corporation’s insured property without the permission or knowledge of the unit owner. In either case, the non-negligent property owner should expect to pay the condominium corporation’s insurance deductible, if the condominium corporation makes the claim. Alternatively, the corporation could sue the person responsible for the loss.
If the unit owner is required to pay the condominium corporation back for its insurance deductible, the unit owner may have a claim against the person who was actually liable for the damage. However, that may be little comfort to the unit owner if the cause of the damage was the failure of an old appliance sold by a bankrupt company, or a tenant with no valuable assets.
Steps Unit Owners Can Take
Not many people have up to $50,000 on hand to pay an unexpected insurance deductible. Even for those who have that kind of money, there are probably better things they want to do with it.
The more practical approach to avoid an unexpected $50,000 legal obligation is to review one’s insurance coverage. If a unit owner’s property insurance coverage doesn’t include deductible coverage of at least $50,000, then the unit owner should seek information from the condominium corporation about its own insurance deductible, and obtain that additional coverage by talking to their insurance broker. Condominium corporations are supposed to let unit owners know their deductible amounts under section 48 of the Condominium Property Act, but the corporation has 30 days to provide that notice. That delay creates a potential exposure gap for unit owners.
If I still owned a condominium unit, I would review my insurance policies, and if necessary call my insurance broker to buy immediate coverage for a corporation’s insurance deductible in an amount up to $50,000. I would also review my third party liability coverage as well: given that condominium insurance deductibles are likely to move to $50,000 due to the effect of CPR s. 62.4 being in effect, there is an increased likelihood that corporations will self-insure damages below this threshold. Corporations will sue the persons causing damage, or, for certain condominium corporations whose bylaws allow damage chargebacks, charge specific unit owners a special assessment for damage originating in their unit. This special assessment avoids the need for the corporation to pursue a lawsuit against the unit owner to prove the unit owner’s liability.
For most unit owner insurance policies, a unit owner should be prepared to pay a smaller portion of the amount $50,000 as their own deductible, depending on the owner’s insurance policy. Whatever a unit owner may end up obtaining with respect to insurance, it is also best practice to carefully check up on a condominium unit on a regular basis, particularly for units occupied by tenants. Preventative maintenance can sometimes avoid damage an owner’s unit, and corporation-insured property, in the first place.
CPR Section 62.4
The section currently reads as follows:
Recovery of amount of deductible
62.4(1) A corporation may pay an insurance deductible in an insurance claim and recover the amount of the deductible from an owner in accordance with this section.
(2) Subject to subsections (3) and (5), an owner, on demand by the corporation, is absolutely liable to the corporation for the amount of the deductible in the corporation’s insurance claim for damage that originates in or from the owner’s unit or an exclusive possession area assigned to the owner.
(3) Despite any bylaw to the contrary, a corporation must not require an owner to pay an amount greater than $50 000 as a deductible in the corporation’s insurance claim.
(4) A corporation may recover an amount under subsection (2) from an owner by
(a) an action in debt, or
(b) levying a contribution under section 39(1) of the Act, if permitted by the bylaws.
(5) An owner is not liable to a corporation for the amount of the deductible in the corporation’s insurance claim where the claim arose from
(a) a defect in the construction of the unit or exclusive possession area assigned to the owner,
(b) damage attributable to an act or omission of the corporation, a member of the board, officer, employee or agent of the corporation, or any combination of them, or
(c) normal structural deterioration of the common property, the managed property or the real property of the corporation, other than property that the owner was responsible to repair or maintain.
(6) Nothing in this section shall be construed in a manner to affect a civil action or other remedy at law of an owner or a corporation against a person who is responsible for damage to property, including damage to property caused through willfulness or negligence.
This regulation can be found on the Queen’s Printer Website, qp.alberta.ca. I copied this text from the original order-in-council that enacted the amendments to the CPR that included these provisions, OC 243/2019.
 Under many insurance policies, a ‘deductible’ must be paid by an insured person before the insurer pays out on the claim.