Under the Deductible – who pays for strata lot damage below the insurance deductible in BC?
The issue addressed in this paper is a legal analysis of whether a strata corporation is required to repair or pay for repairs to a strata unit if the cost of the repairs is below the strata corporation’s insurance deductible. This circumstance is not addressed in the Strata Property Act (the “Act”) or in any British Columbia case law. Accordingly, without legislative reform or a test case, strata corporations and the insurance industry are left with uncertainty as to the legal obligation to repair damage to property which is otherwise covered by the strata corporation’s property damage policy, but is below the policy’s deductible. We have provided our opinion on the likely result if the issue were to be litigated, but without any BC precedent and with conflicting decisions from other jurisdictions, our opinion is expressed with obvious caution.
Absent specific modifications to a particular strata corporation’s bylaws, strata corporations do not have a duty to repair damage to a unit owner’s property otherwise covered by the strata corporation’s insurance where the loss is below the insurance deductible. The cost to repair that damage is likely not a common expense which must be shared by the unit owners via the strata corporation.
Regime of the Strata Property Act
An analysis of the rights and obligations of the strata corporation and the unit owners regarding insurance and liability for claims subject to a deductible must consider:
- The strata corporation’s duty to obtain and maintain insurance by s. 149;
- Duties to repair reflected by s. 72 as may be altered by bylaws;
The Act legislates the property that a strata corporation must insure or may insure. Pursuant to section 149, original fixtures in each strata unit must be insured as well as the buildings and common property.
What the strata corporation has actually insured is determined by its particular insurance contract; those contracts may go beyond insuring “original fixtures” and include insuring the units, excluding personal property and improvements. This would include non-original fixtures that are not “improvements.”
The strata corporation’s insurance is usually subject to a deductible which can be quite large. According to Section 158 of the Act, the deductible is a common expense to be contributed to by strata fees. Each unit owner/occupant is a named insured on the strata corporation’s policy, so each one can make a claim if his or her property is damaged by a covered peril. Section 158 explicitly states that it does not limit the capacity of the strata corporation to sue an owner to recover the deductible if the owner is responsible for the loss or damage giving rise to the claim.
There is no legislation that addresses the situation where damage occurs to a strata corporation’s insured property that is below the insurance deductible.
Duty to Repair
The strata corporation must maintain and repair common property under section 72 of the Act, but there is no such obligation to repair and maintain the property of strata lots. Section 72 does permit a strata corporation, by bylaw, to take responsibility for the repair and maintenance of specified portions of a strata lot, which could mirror what the strata corporation insures. This would depend on a particular strata corporation’s bylaws.
The standard bylaw, 2(1), states that an owner must repair and maintain the owner’s strata lot, except for repair and maintenance that is the responsibility of the strata corporation. Standard bylaw 8(d) which touches on the strata corporation’s obligation to maintain and repair strata lots does not extend to original strata lot fixtures.
In summary, pursuant to section 72 and the standard bylaws, the strata corporation does not have an obligation to repair and maintain original fixtures contained on strata lots unless that has been altered by bylaw.
The Act obligates the strata corporation to insure certain property in strata lots. The issue remains as to whether this creates an obligation to pay for losses below its deductible that would otherwise be insured.
Covenant to Insure
It is common for a landlord and tenant to have a covenant to insure as part of their lease. Such a covenant prevents the insuring party from suing the insured party for any portion of the loss. If the Act created a duty akin to a covenant to insure, then the strata corporation would be responsible for losses falling below the deductible. In North Newton Warehouses Ltd. v. Alliance Woodcraft Manufacturing Inc., 2005 BCCA 309, the court held at para 33:
… A contractual undertaking by the one party to secure property insurance operates in effect as an assumption by that party of the risk of loss or damage caused by the peril to be insured against.
In Orange Julius et al v. Surrey et al, 2000 BCCA 467, the Court of Appeal considered a covenant to insure between a landlord and tenant and it turned its mind to which party bears the cost of damages which were below the deductible. The Court of Appeal stated at paras. 34 and 35:
With respect to deductibles, if the appellants’ position were correct, Laing’s exposure to liability would depend on the amount of risk the tenant was prepared to accept in the form of a high deductible, so as to save on premium costs. It would mean that Laing would have no insurance coverage at all where the loss suffered was less than the amount of the deductible. In this case some deductibles exceed $10,000.
However, it is the terms of the covenant to insure, and not the terms of the insurance coverage actually obtained, that must determine the scope of the covenantee’s protection from liability. Here the tenants were required to obtain insurance on their property in an amount “not less than” their property’s replacement value or actual cash value. Nowhere do the covenants to insure say that the tenants need only obtain insurance coverage for losses exceeding a certain amount. Here, the tenants were obliged by their covenants to insure in such a way as to obtain coverage for their entire loss.
The cases discussed above make it clear that if a covenant to insure an entire loss exists, then the covenantor is responsible for damage below the deductible.
In Condominium Plan No. 0122336 v. Shivji, 2007 ABQB 572, the Alberta Court of Appeal considered whether a unit owner or the condominium corporation was responsible for a deductible given the condominium’s obligation to insure certain property.
The condominium’s bylaws required that it place and maintain an insurance policy on all of the units and the common property as required by Alberta’s Condominium Property Act. By virtue of Section 32(6) of that Act, the bylaws bound the corporation and unit holders to the same extent as if they had been signed and sealed by the corporation and by each owner, and as though they contained covenants on the part of each owner with every other owner and with the corporation to observe and perform all of the provisions of the bylaws.
The Court of Appeal held that by virtue of the combined effects of the Condominium Property Act and regulations and the bylaws, the respondent had covenanted to insure the appellant’s property. Accordingly, the condominium corporation could not sue the unit owners for recovery of the deductible.
Although it is tempting to analogize a strata corporation’s obligation to insure strata lots to a covenant to insure, it is important to note that the Strata Property Act does not create a covenant to insure. Covenants are contractual agreements between parties. In Alberta, as illustrated in Condominium Plan No. 0122336, the legislation explicitly creates covenants between the strata corporations and the unit owners; the BC Act does not. In fact, the BC Act explicitly provides for a strata corporation to recover its deductible from a responsible owner (s. 158), so the result in Condominium Plan No. 0122336 is not directly applicable to BC. The BC Act creates a legislated requirement for insurance and not a duty akin to a covenant to insure.
Another issue to be addressed is whether losses falling below the strata corporation’s deductible could be characterized as a self-insured retention. In The Owners of Strata Corporation VR2673 v. Comissiona et al, 2000 BCSC 1240, a strata corporation tried to claim back a deductible under the predecessor legislation to the Act. The Court found the strata corporation could claim back the deductible from the negligent unit owner under the principles of common law. The court considered whether the deductible constituted self-insurance implicitly agreed to by all the strata owners, or whether it was intended that the owner responsible for any damage would bear the cost of the deductible. The Court allowed the strata corporation to sue to recover a deductible, a conclusion inconsistent with the deductible being a true self-insured retention.
The Court considered Section 158 of the Strata Property Act (which was not yet operative) and concluded that it preserved the common law by not limiting the right of the strata corporation to sue under common law for the value of the deductible.
In Strata Plan KAS 10199 v. Keiran, Simkus and Wawanesa, 2006 BCPC 360, the Provincial Court considered whether a strata corporation could claim back an amount below the deductible for damage to a responsible strata lot owner’s fixtures, due to a pipe failure. The court held that the unit owner was not negligent for the loss but was responsible as a result of the Act and bylaws which provided a duty to repair and maintain his own unit. The strata corporation was entitled to claim back the money it paid to repair the damage in reliance on section 158.
The unit owner also had homeowner insurance that covered $2,500 for any deductible assessed back to the owner, as well as insurance coverage with a $500 deductible for losses not covered by the strata corporation’s insurance. The court held that the unit owner’s losses in this case fell within the latter coverage. This decision was upheld on appeal to the Supreme Court of British Columbia (2007 BCSC 727). The outcome in Strata Plan KAS 10199 provides support for the position that losses below the deductible are uninsured losses and not a self-insured retention.
Section 158 of the Act makes the deductible a common expense. This provides the strongest support for an argument that the deductible is analogous to a self-insured retention. This interpretation is weakened by the Act allowing the strata corporation to claim back against a responsible party – a concept opposite to a self-insured retention. This interpretation is further weakened when considering the strata corporation’s insurance also covers all common property and potentially significant damage across multiple units. Having the deductible as a common expense is administratively convenient, but it does not follow that it creates a self-insured retention.
Ontario case law has held that condominium corporations are entitled to have reasonable deductibles. In Miluzzi v. York Condominium Corp. No. 60, 1996 CarswellOnt 3939 (Small Claims), the plaintiff sued its condominium corporation for not repairing certain water damage at its own expense and for not obtaining zero deductible insurance. In that case, the condominium corporation had a $5,000 deductible. In a brief decision, the court held at paragraph 4:
For the purpose of subsection 27(1) of the Condominium Act, I find that replacement cost insurance can exist with a deductible provided the deductible is reasonable in the circumstances. A reasonable deductible ought to be expected by the unit owners. In the case at hand, the deductible was reasonable in light of the Corporation’s prior history of claims made under the policy. It was also the only way the defendant could get someone to underwrite the policy… I also find there is no basis for the plaintiffs to be successful on the issue of breach of contract.
Miluzzi was considered in Stevens v. Simcoe Condominium Corp. No. 60, 1998 CarswellOnt 3808 (Ont Ct. of Justice), which was an appeal from a lower court decision finding the condominium could not recover the amount of a deductible from a unit owner. The appeal court found that it could. So long as the deductible was reasonable, the combination of the Ontario Condominium Act, regulation and condominium corporation bylaws specifically made unit owners responsible for certain losses that fell outside of insurance coverage.
In Stevens, the court considered the obligations of the condominium to insure, and held:
 It is common ground between the parties that as a matter of commercial reality, “insurance…against major perils to the replacement cost” required by s.27(1) is invariably subject to a deductible. We can see no reason to ignore commercial reality and read s.27(1) as imposing upon the Corporation a duty to obtain insurance without any deductible or to impose liability upon the Corporation for any deductible portion of the policy. The Condominium Declaration bylaws and rules define the respective obligations of the owners and the Corporation with respect to liability for damages and expressly provide that insurance obtained by the corporation may be subject to a deductible. In our view, the issue of liability for the deductible falls to be determined in accordance with the provisions of the Declaration, bylaws, and rules of the Condominium Corporation, defining the rights and obligations of the owners and the Corporation and by analogy to the prevailing practice in the insurance industry which is to shift the deductible portion of the loss to the party causing the loss as a means of disciplining insurance claims.
If what would otherwise be an insured loss falls below the deductible, it is unlikely that the strata corporation would be responsible for the cost of repairs to a strata lot.
First, the sections of the Act and standard bylaws which address the obligation to maintain and repair original fixtures in strata lots, places that responsibility on unit owners (again, unless modified by bylaw).
Secondly, it is unlikely that the Act creates a duty akin to a covenant to insure between the unit owners and the strata corporation such that the strata corporation would be responsible for losses below its deductible. The cases involving true covenants to insure focus on the content of the duty to insure created by an agreement that one party will bear the risk of certain damage occurring to specified property.
In the case of the Act the obligation to insure is not by agreement but is mandated by statute, one that contemplates a deductible. In the circumstance, one cannot read in duties akin to a covenant to insure into the Act.
Thirdly, it is a stretch to characterize losses below the deductible as a self-insured retention. The Act contemplates that the strata corporation’s insurance will be subject to a deductible, and not a self-insured retention. Further the cases discussed above, The Owners of Strata Corporation VR2673 and Strata Plan Kas 10199, are inconsistent with the losses below a deductible being characterized as a self-insured retention.
Fourthly, the Ontario cases Miluzzi and Stevens dealt with the question of whether a unit owner could claim costs below a deductible from the strata corporation or whether a strata corporation could claim back a deductible from a unit owner. In Miluzzi, the court accepted that commercial realities meant it was reasonable for a condominium to have a deductible on its insurance.
It is our opinion that without a specific case on point or a modification to the wording of the Act there is insufficient support to read into the Act that a loss under the strata corporation’s insurance deductible is a common expense, notwithstanding the wording of section 158. Rather it is better characterized as an uninsured loss. The unit owners pursuant to the standard bylaws under the Act are responsible for such losses to their respective strata lots.