Canada: Condo Adviser Episode 45: Insurance In Condoland - Part 2

Transcript

ROD ESCAYOLA: Good evening, everybody. My name is Rod Escayola, and I'm your condominium lawyer with Gowling WLG. And tonight, we are flying solo. We haven't invited any guest speakers. It's just going to be the condo trio because it's really very sort of a legal focus the discussion that we're going to be having.

But if we get stumped with one of your questions on insurance, I think I'm going to scramble and call Trish, who was with us last month. So this is episode 2 of the series on Insurance in Condoland. A month ago, we had part 1, where we had two managers. We had also Trish Baratta, an expert in insurance who answered-- we kind of set the stage for today's discussion, and we, frankly, ran out of time last time. So we kind of decided to have a second episode.

But if you're curious about the first episode, it's not posted yet, but it will any minute now. And so my team is working on streaming it. And so eventually, you'll be able to watch the first episode. There's going to be a bit of a recap at the very beginning just to make sure everybody's on the same page.

But the focus today will be mostly on how to improve your situation by passing a standard unit bylaw and/or an insurance deductible bylaw. So the question these two bylaws will say, OK, what are those? What do they do? How do we adopt them and so on and so forth. There it is. That's for the intro. So, as I said, around the table, we have Graeme MacPherson, who has been-- he's contractually bound to be here. So it's not like he had a choice. Hey, Graeme. And, of course--

GRAEME MACPHERSON: I would have come even if they didn't make me.

ROD ESCAYOLA: For sure. And, of course, we have Nyla [INAUDIBLE] OK, I see there's already a hand that is up. Jeez, that's always-- oh, two of them. I better ignore them. Folks, let me just do the housekeeping first and then we'll see. OK, so the housekeeping before we jump in, my usual disclaimer.

First, whenever we refer to legislation, we're referring to Ontario legislation. And so for those of you listening from abroad, you may need to verify what applies and what doesn't apply to you. And the information we're providing today is as up to date as possible on March 6, 2024.

So if you watch this later on, just keep in mind that the information may have changed. Also, keep in mind that what we are providing tonight is general information. How it applies to your situation and who's responsible for the specific flood in your specific unit resulting from the specific owner and the specific unit above yours doing a specific action or omission, you need to talk to someone. You can't just apply generally what we're discussing tonight.

I also wanted to flag the fact for you condo managers online that we've been approved for a CPE credit of 1.0. So you'll be able to log that. I think you need 10 hours. So there's an hour here. There was an hour last week. We're well on our way, and it's only March. OK, and finally, keep in mind that the session is being recorded. I don't know why I have to say that. OK, perfect. Let me see in the chat to see if anybody has a technical problem. No. And I see the questions--

GRAEME MACPHERSON: There's a lot in the Q&A about your beard, though, and lack thereof.

ROD ESCAYOLA: Why would they put that in the Q&A and not in the chat? This is chat material.

GRAEME MACPHERSON: Because it's important and hard hitting stuff.

ROD ESCAYOLA: OK, perfect. Let's just dive in. This is the recap. We're going to start with a recap. I'm still sharing my screen, Graeme?

GRAEME MACPHERSON: Yes.

ROD ESCAYOLA: Yeah, OK, perfect. So we're going to start with what's the default setting under the Act? Before we start piling on the standard unit bylaw and the insurance deductible bylaw, what is the default setting under the Act? And for that, I'm going to turn to you, Nyla. And I'm going to reach out in the meantime in the chat to the hand that is up to see how I can help. OK, so, Nyla, take it away.

NYLA: OK, so, as Rod said, this is a bit of a recap of our first episode on this. So essentially, you want to look at the default setting. So what is the default rule? And you always turn to the Act. So the Condo Act says that owners are responsible for maintaining their units and the corporations responsible for maintaining common elements.

So when we say maintain, we mean maintain after normal wear and tear. So examples of that would be cleaning, painting, making sure your furnace is being regularly checked, so things along those lines to maintain your unit or the common element.

But then Section 89 of the Act states that the corporation is responsible for repairing units and common elements after damage. Now, that's your default setting there. What you want to do, though, is look at your Declaration because your Declaration may have wording in it that shifts the responsibility to the unit owner for being responsible for repairing any damage to their unit up until what is indicated as your standard unit.

So usually, in your Declaration, there's going to be a section attached to it that outlines what is considered your standard unit. And that's what you'd be responsible for repairing. Now, this is when your standard unit bylaw comes in.

Your standard unit bylaw is what the corporation is responsible for repairing and insuring. So that's where that comes in and then your insurance deductible bylaw. And I'm going to leave it at that because Graeme and Rod are going to speak about that later in the presentation.

ROD ESCAYOLA: Yeah, OK, so things to take away is that the maintenance-- when you look at the unit, the maintenance of the unit rests with the owner, but the repairs of the units, at least the repairs after damage, that, the default setting is that it's the corporation that's responsible to go in. And that has always blown my mind.

When you think about it, it's totally different from real life for the standard Ontarian out there that lives on Trim Road somewhere in Orleans or wherever they happen to live in their freehold where they're responsible for their own insurance and maintenance and repair of their own homes. In this case, big brother will come to the rescue. But that is subject to the declaration. Did you have a couple of examples about declarations that change that, Nyla?

NYLA: I think so. I think it's on the next slide.

ROD ESCAYOLA: There it is. Walk us through this.

NYLA: OK, so this is an example of a declaration with the wording that we were kind of speaking about. It's under the repair and maintenance section. So you'll see here, subject to the provisions of this Declaration and the Act, the corporation shall repair and maintain the common elements and shall repair the units after damage.

So, in this case, this Declaration does not shift the onus to the unit owner to repair after damage. It's consistent with the default that we see in the Condo Act where the corporation is responsible for repair of the unit and the common elements.

ROD ESCAYOLA: OK, amazing. Well, by that, I mean amazing example. I don't think it's the best provision to have in your declaration because you're kind of still holding-- the corporation is still holding all the responsibility here.

There's a second example. Oh, wait a minute, I need to clean this. Something happened here. Let's see here. I think that's an error on my part. Let me just go to the slide. There's two slides in one. Voila, here it is. Take it away. This is a second example.

NYLA: So you'll see here, this is different than what you'll see in the first one. So the wording here, each owner of a dwelling unit shall maintain his dwelling unit. And subject to the provisions of this Declaration and the Act, each owner of a dwelling unit shall repair his dwelling unit after damage all at his own expense.

So here, you do see that an onus is kind of shifted to the unit owner, but again, the language in this is a bit ambiguous. And so there's usually more specific wording that shifts that obligation on the unit owner that you'll see in the next example.

ROD ESCAYOLA: Right, so the ambiguity here that we sometimes see-- and this is a very, very common one what you see on the screen, folks. The prior one is an older version. This one is quite common where-- and the ambiguity is this. It says, subject to the provisions of the Declaration-- forget about Section 123 for a second.

So subject about the provision of the Declaration, the way we interpret that, we interpret it as having shifted the responsibility a bit to repair the unit as pushing that onto the owners because it says repair your unit after damage at your own expense. But not everybody agrees with that.

And some people say, well, wait a second, the provisions of the Declaration also imposes on the corporation an obligation to insure the units. And so that's where there's a bit of an ambiguity or conflict between these two provisions. And the last one that we're going to discuss is this guy here, Nyla.

NYLA: Yeah, so this resolves the ambiguity that Rod just spoke about in the previous example, that competing interest that we see in the Declaration, here, you'll see Rod has it in red. Subject to the provisions of this Declaration, each owner shall repair his unit after damage at such owner's own expense save and accept for any damage for which the cost of repairing is recovered under any policy or policies of insurance maintained by the corporation subject to a loss of deductible. So here, that kind clarifies the obligations in terms of repair and who's responsible for covering that expense.

ROD ESCAYOLA: Right, absolutely. I would say this, however. I would say that of the three we've seen now, the middle one, the second one is probably the one that is the most advantageous to the corporation because in the first case, the corporation is stuck repairing the unit after damage. And the next case and the third case, the corporation must make a claim to its insurer.

And the middle case, if the corporation is seeking to not be on the hook for a repair in a unit, and there's all sorts of good reasons for that, that is a better one to have. So what's the lesson? The lesson is the minute that there is an incident and you're wondering who's responsible for the repair of the unit, the first thing you should do is check your declaration. And the second thing you should do is press the speed dial. Call Graeme or Nyla or I. OK, so that's for the standard the default setting under the Act. Graeme, standard unit bylaw.

GRAEME MACPHERSON: Yeah, so this is one of the bylaws we're going to go into a little bit of detail about today. And it's a bylaw that I think is really important but is also in the Condo Act is kind of clear as mud as to how it works and what it actually does. It's one of the, I think, most confusing and most misunderstood aspects of condo law. So we'll try and break it down here.

But basically, the point of the bylaw is this. As we just heard from Nyla, there may be circumstances, depending on what your Declaration says, where the corporation is responsible for certain unit repairs. And in addition to that, regardless of who's responsible for repairing the unit, the corporation is also responsible for insuring the units.

Now, does that mean that if the corporation has to repair or insure a unit that it has to do it all the way to the extent that to the owner had it? Like in Rod's unit, if he's got his golden toilet and his marble floors and his life-sized statue of me, it's all very expensive in there. And if something happens, is the corporation going to be responsible for repairing that entire thing?

And the answer to that is no. And that depends on what the, quote unquote, "standard unit" is. So what this bylaw does is it sets to what extent is the corporation responsible to repair a unit if it has to repair a unit, and to what extent does the corporation have to insure the units? So what we tend to-- I guess I'll talk about on this slide here, we see on the third dot, there's what's called the bare bones model.

And so what we tend to see and what a recent trend in Ontario has been for these standard unit bylaws is to define the standard unit, the part of the unit that the corporation is responsible for repairing and insuring as basically just the bare bones of the unit, it's sort of skeleton, it's structure and floors and any connections to plumbing, wiring, or any sort of utilities like that.

And everything beyond that is what's considered an improvement to the unit. And that's the owner's responsibility to repair and insure. And there's a couple of reasons-- I mean, I think from the corporation's perspective, it's obvious why this sort of bylaw would be advantageous. It kind of shifts more onus of repair onto the owners and out of the corporation, and it shifts more insurance obligations onto the owner.

But you may be wondering, well, you know, Graeme, we have to pass these bylaws somehow. How are we going to get people to vote for this? But there are a lot of, I think, very good, very valid reasons why an owner would be inclined to vote for a standard unit bylaw like this as well. And I think we talked about those on the next slide.

ROD ESCAYOLA: Sorry, can we just go back. I just want to go back to-- because you focus on the bare bones, I think, right?

GRAEME MACPHERSON: Yeah.

ROD ESCAYOLA: Have you spoken about the spectrum? Like, I mean, there's a sliding scale here, obviously.

GRAEME MACPHERSON: Well, yeah. So, like I said, you're right. I'll get into that a little bit. So what we tend to recommend and what we tend to see as a latest trend is a bare bones model. But it doesn't have to be that way. You can set the standard unit at whatever level you'd like. It can include flooring and cabinets.

It could include carpeting but no hardwood flooring. It could include cabinets that are linoleum but nothing better than that. So you can set it at a middle ground if you prefer. But for all sorts of reasons that I'll get into in a bit, we do think the bare bones model does work better, A, for its simplicity, and B, for insurance purposes that I'll describe.

So in terms of why an owner would ever be interested in a bylaw like this, something to think about is this. As an owner, on every month, you're paying your common expenses. And those common expenses are the lifeblood of the corporation that are going to all sorts of expenses that the corporation has to pay for, including the corporation's insurance premiums that it's constantly paying.

And the corporation's insurance premiums are going to be set based on a variety of factors. But one of the most important factors is the replacement cost of the building or how much the corporation is insuring. And so if we consider, well, let's just pretend-- let's deal with an imaginary skyscraper condo.

If the corporation is responsible to insure not only all of the common elements but also all of the units and all of the improvements within the units, the replacement value of that structure is going to be very, very high. But if instead the corporation is only responsible to insure the common elements and then the bare bones or at least something very limited within the units, then your replacement value goes way down. And therefore, your premiums can go down or at least stay more controlled.

This, obviously, means that you can help control or even reduce what your common expenses are. And part of the thing to remember here is that as an owner with a unit, you are very likely already insuring everything in your unit anyway. And so if you're already paying your insurance to cover everything in your unit, you're essentially paying for the same coverage twice by having the corporation cover the same thing.

So it's a little duplicative. And I think I would say to anyone because I sometimes get the question, well, how do I know that I'm actually covering everything in my unit with my insurance? My answer to you if you ask me that is that if you're not, I don't think you're properly insured.

Then I also think that one of the things too for owners to consider when they're deciding whether they want to vote on a bylaw like this is to not wear your owner hat for a minute but wear your shareholder in this corporation hat and think about what's best for the corporation.

I also think this bylaw is useful because it's more equitable in the sense that if you are someone like Rod, who has golden tiling and marble cabinets and everything that's super expensive, it seems unfair to the rest of us who live there that if something happens to Rod's very, very expensive unit, somehow, now, the corporation's insurance premiums are going to go up.

Why are we all paying for his excessive and flamboyant choices in his decoration? So when we set the standard unit as something just like a base level bare minimum, it allows everyone to have the opportunity to make whatever improvements they deem fit, but you are responsible for them. And you are not putting that responsibility on your neighbors.

Likewise, if you decide to live very ascetically and don't want very much in your unit, you can rest assured knowing you're not going to be on the hook for very expensive improvements somewhere else. This system also puts the onus on owners to be a little more careful.

You might be more inclined to actually wipe off your plate before throwing it in the dishwasher, things like making sure your pipes don't clog, just taking care of your unit and trying to prevent floods or damage and putting that extra step in, knowing that you don't necessarily have the safety net of all of your neighbors catching the damage of what occurs.

And lastly, the last two dots kind of work in tandem here. But I think having a standard unit bylaw, especially a very simple one that sort of defines it as not much is included in here, because it's so simple, it really eliminates the possibility of any disputes or any arguments over who's responsible for what. And it can really streamline the repair and insurance process with your insurers.

I also think that it's worth noting that if you have a condo insurer, they will have seen bylaws like this before. They know how they work, and they won't be necessarily shocked to see anything like that. So it really can help streamline the process, get the haggling out of the way, and get it to a minimum. So you can just get the repair done and move on.

ROD ESCAYOLA: Yeah, OK. Well, lots of questions came up during this presentation. And so I think just to make sure everybody's on board, I'm just going to take a step back here. So the default setting is that the corporation will go in to repair the unit. If the corporation goes in to repair the unit, well, to be able to do that, the corporation has to have insurance.

In fact, the corporation has to have insurance in any event, but you definitely need to have adequate insurance at the corporation level to go repair Graeme's unit. Now, everybody pays towards that premium, right? And your premium could be-- it varies greatly. But it could be $50,000 a year. It could be $75,000 a year. It depends on what's the size and age and claim history.

So all of you collectively owners, you're paying towards the premium for the corporation to be able to go and repair the units when they get damaged. Every time there's an incident, let's say there's 100 units in this condo corp, every time there's an incident, we turn to the same insurer.

And we go, hey, condo insurer, we've damaged another unit here. Come on in and repair it. And you can see that very quickly, it's going to have an impact-- your history is going to have an impact on the premium. The premium is going to go up. The insurance deductible will go up. Who pays for all of that? All of you good owners, right?

And so we need to find a way to maintain and control the premium and our claims history. So one way of doing that is by reducing the kind of claims we will make at the corporate level. And so when we're talking about the spectrum, I mean, if everything is included in the standard unit, everything that the builder has put in your unit is the standard unit, that is more costly to repair. Therefore, that's more costly to insure, right?

Whereas if you remove everything from the unit and you have nothing in the unit, just the bare bones, just the structure, well, that is not very costly for us to repair because we don't have anything-- we, the corporation, don't have anything to repair because it's the bare box. The owner's responsible for everything inside.

So having less frills attached to the standard unit is less expensive to repair, and therefore, less expensive to insure. And as Graeme said, most owners are already insured for the same coverage. And it's less expensive to be insured at the personal level, the home insurance level for the same floor than it is at the corporate level, because this is a commercial insurance, it's more costly. Now-- yes.

GRAEME MACPHERSON: Sorry, I was going to say if we're staying on standard unit, there's a couple of questions in the Q&A I want to get to as well.

ROD ESCAYOLA: Yeah, sure. Let me just finish about the sliding scale. So at the very end, the more expensive end for the condo corp, everything is included. It's more expensive to repair. At the-- I don't want to say the bottom end, but at the bare bones end, the less you include in the unit, the less expensive it is to repair, the less expensive it is to insure.

That's good for the corporation. And by the way, what's good for the corporation is good for the owners because if you reduce your premium or if you avoid increases in your premium, all of you are collectively benefiting from that. Now, somewhere in the middle of that scale, you may want to remove expensive items instead.

If you don't want to go all the way down to a bare box, you could say, listen, what we're going to do, we're going to remove the flooring from the standard unit. So if your floor gets damaged, you deal with it. But we're going to take care of everything else.

And that removes a very expensive element. And by removing it, we're just shifting it. We're just deciding which insurer is going to be responsible to repair the flooring in this case, right? Is it going to be the corporation's insurer? More expensive. Is it going to be the owner's insurer? Less expensive and less risky because, as I said, if we're all under one insurance policy, we have 100 units.

If there's 100 floors in our history-- floods in our history, we're going to go to our insurer 100 times. Whereas if we have 100 units and they're all individually insured, well, three or six may get flooded once. It's going to go to his or her insurer. And then later on, 10 or 1 may be flooded. That's going to go to his or her insurer.

And so we're tapping into different insurers. And we're not always knocking at the same door, which has the consequence of increasing our premium. What we're trying to do is we're trying to deal with the risk and to find the least expensive method of insuring the same elements, the flooring in this case. And as Graeme said, in most cases, owners are insured.

Now, I saw Jeanette ask a question. She said, oh, well, you know what? The lesson she got from that was, I guess, I as an owner don't need to insure my stuff since it's covered by the corporation's insurer. That's the wrong lesson. You want to be properly insured. That should be the takeaway because if something happens, you're going to be biting your fingers if you don't have adequate insurance. OK, Graeme, you wanted to answer some questions.

GRAEME MACPHERSON: Yeah, yeah. And also, to Jeanette, I would say that one thing that is good from that, though, is do make sure your insurer does have a copy of your corporation's bylaws and declaration just so that you're all on the same page about what is your responsibility and what isn't.

Yeah, so, Jeanette said that wasn't exactly what she meant. But yeah, so don't worry. I think we got it. And you just want to make sure that your insurer is aware of what your standard unit is. And that way, if something were to happen and you are required to call on your insurer, you ideally don't want the first time they're seeing everything to be when you need them to.

Now, we got a question from DSC that talks about, well, what if the corporation doesn't have a standard unit bylaw? Could they refuse to allow someone like Rod to install his gold tiles and hand-painted bathroom murals? Why should Graeme with his linoleum floor and IKEA cabinets have to pay for Rod's expensive choice?

Now, I do like the way this narrative is shifting. But I will say that if there is no insurance-- if there's no standard unit bylaw that's been adopted, the default setting, the quick and dirty answer is is what the builder put in will be the standard, what the specs were when the time the corporation was developed.

So I guess my talking about we, obviously, don't want to be paying for our neighbor's highly expensive improvements to the unit, that's more an argument to make sure that your standard unit bylaw doesn't include everything under the sun.

But if there is no standard unit bylaw, rest assured you're not going to be stuck with everything under the sun unless whatever the builder put in was really, really expensive and fancy. If there is no standard unit bylaw, the answer is what was put in place at the time of construction.

ROD ESCAYOLA: And I think another benefit of a standard unit bylaw is to clarify that so we know what is to be expected to be put back in the unit. And set aside for a second that I live out of my car and that I don't even have a washroom that I can hand paint.

So setting aside my expensive, allegedly expensive taste, sometimes it's just over time the corporation has been in existence for a long period of time. And when it was built, they had this kind of carpet or linoleum. But eventually, everybody went to hardwood floor and so on and so forth. So you want to be able to see, OK, what was the standard because sometimes, it's lost to history what was in the unit at one point in time.

But if you are going to adopt a bylaw, by all means, that is your opportunity to reduce the risk and the cost to the corporation. And one of the things-- and I'm not sure if you mentioned that, Graeme, but I think you did. But I'll just reiterate it. Your premium is based on the cost to repair every potential unit for every potential plot flood, right?

And so if you remove some finishes from the units, then for the insurer, the corporation's insurer, the cost to repair this building has gone down. So, for instance, last time you had your building appraised, maybe they said, OK, if we fix everything, if this crumbles to the ground and we rebuild it, it's going to cost $35 million.

But then if you tell them, oh, by the way, you never have to fix the inside of a unit because that has shifted to the owners, well, maybe it's not going to cost $35 million to rebuild this complex. Maybe it's going to cost $29 million to rebuild it. I'm just making it up now.

And so that's because we've reduced, we've removed the cost of fixing the interior of the units. And by doing that, we're reducing the risk and the cost to repair. And so therefore, it's reflected in the premium. And the premium goes down. Any other questions you wanted to try to squeeze in, Graeme, before I move on to the next one?

GRAEME MACPHERSON: Another one on standard unit that I think is one of the most often questions I hear is I think it's really easy to confuse and conflate standard unit bylaw, what's part of the standard unit versus what's not with what's part of the unit and what's part of the common elements. Those two issues often get mixed up.

And so, I just, again, as Nyla said, in terms of what's part of the unit and what's part of the common elements, for that, you'd find that in your declaration. Changing the standard unit bylaw to a bare box doesn't change what the boundaries of the unit are. And it doesn't change what the corporation's responsible for vis-a-vis the common elements and what's not.

So what it does do is set-- when you set the standard unit, it sets up what part of the unit is the corporation responsible for insuring. And in circumstances where the corporation does have to make unit repairs, what level does it have to repair it to? What the standard unit bylaw does not do is change what's part of the unit and what's not and therefore change the owner's responsibility-- like what the owner is responsible to maintain.

ROD ESCAYOLA: Right, Debbie Wilson is right. We oversimplified what is the situation when you don't have a bylaw. And the more recent constructions, it's pretty much-- it's a gross summary, but it's what the builder has put in. But it's not the case necessarily if you have an older--

GRAEME MACPHERSON: An older building.

ROD ESCAYOLA: --building, yeah. OK, so, next. We're just going to switch topics here for a second. And if we have time, we'll get back to that. But I don't want to run out of time. I want to cover the insurance deductible bylaw. So what we've spoken about so far is who's responsible to repair the unit, right?

And we've dealt with that. Now, who should be paying for the deductible amount? Now, the deductible amount is the portion that the corporations insurer or that any insurer will not pay, right? The first payment kind of thing. So, for instance, it may be that at your condo corp, the deductible for the corporation is $50,000.

It could be 20. It could be 50. It could be 150. That's the portion that the insurer will not pay. And the insurer will expect the corporation to pay. It's easy to understand when you think about your own car, right? Your car is insured. You have a deductible amount.

So if you get into an accident, you have to pay out of your own pocket the first $1,000, and the insurer will pay just after that. That's an example. So who is responsible to pay the deductible amount? Any time we go to the condo corporation's insurer and we say, OK, Graeme has, again, flooded his unit because he flushed rice down the toilet. We're lucky if it's rice.

And so who's responsible to pay that deductible because the insurer will say, sure, it's going to cost $40,000 to fix Graeme's unit, but we're not going to pay the first $50,000. Well, the owners are responsible collectively. All of the owners are responsible to pay that deductible, the first $50,000, let's say, right?

The damages are $100,000, let's say. The first $50,000 have to be paid by the collective of owners if you don't have an insurance deductible by law. And so you can see how that can easily put a dent in your budget. Now, there's an exception to that. And the exception is under Section 105.

If the damage is limited to a unit, a single unit, and it's resulting from an act or omission of an owner, then, in that case, we can turn the deductible to that owner. I'm just going to give you an example. Graeme is cooking some eggs. He forgets them on the stove.

He goes out with his buddies. Comes back. There's a fire. It damaged only his unit. That's an example. Well, we would be able to turn to him for that deductible. We wouldn't hit the other owners for the deductible that's for damage in his unit caused by his actions.

But if it's not for that, if the damage goes beyond the unit, so he turned the tubs-- he wanted to take a bath. He turned the faucets on, went for a walk, forgot about it, the bath overflowed, damaged his floor, my floor, Nyla's floor and the floor of everybody below him. He lives in the penthouse. And so who's responsible for the deductible in that case?

You can't charge it to Graeme because it has exceeded the limits of the unit. Despite the fact that he's at fault in both cases, it's exceeded the unit. And so that's when a deductible bylaw comes in handy because what it allows us to do, the bylaw allows us to extend the circumstances under which an owner would be responsible to pay the deductible.

The objective is not to go collect from all of you the deductible because Graeme was being Graeme, right? So, as I said, the purpose of the bylaw is to allocate the responsibility of the deductible in the fairest way. And so there's three things that we consider, three scenarios.

First scenario is when someone is at fault. Graeme left the eggs boil over or ran his tub and forgot about it. If he's responsible for the damage that followed, who should absorb the deductible amount, the first $50,000? Well, obviously, this one is easy. Graeme should, right?

I mean, why would I pay for that? Why would you pay for that? He's the one that caused the chain of events. And so, in that case, despite the fact that the damage went beyond the unit boundaries, with this bylaw, we want to be able to go back to Graeme and say, Graeme, yeah, you're going to have to absorb the deductible.

And by the way, if he's properly insured, he will claim the deductible from his insurer, right? That's important for owners to be properly insured. The question will basically be which insurer is stuck with the deductible? Now, let's assume that it's not his fault. He didn't do something so egregious or so obvious, but the source of the damage comes from one of his appliances.

So he's not really at fault, but it's his dishwasher that leaked or his washing machine. It damaged six or seven units. Well, again, if I ask you the question who should pay for the deductible, what's the fairest way of dealing with the deductible? I think most of you would agree that the deductible should be shifted onto the unit that is at the source of the damage, right?

I mean, it's not my dishwasher. Why am I paying my share of the deductible? And so, again, with a good bylaw, you'd be able to go back to Graeme and say, listen, it's your dishwasher. The next question would be, what if no one's at fault? And what if the source of the damage is not someone's unit necessarily? It's not Graeme's dishwasher.

So think about a window busted open and rain coming in. Think about the roof leaking. Think about a stack or a pipe, a riser that, in fact, results in a flood. Something happens. You have a glycol leak, let's say, and it affects a couple of units, right? And so when no one's at fault and when the source is now within the unit, who should pay for the deductible amount?

Either everybody or the units affected, right? And it's up to you to decide what's the deductible bylaw that you want. But our recommendation is that you should still turn only to the units that are damaged, not to the collective. And so if Graeme is at fault, he pays the deductible.

If it's Graeme's toys that are leaking, he should pay for the deductible. If no one's at fault and let's say it comes from common elements, the water or the glycol comes from common elements, in our view, it makes more sense to turn the deductible and to apportion it between the units that are damaged because these units can turn to their insurer.

And they can say, my unit was damaged. And on top of that, my portion of the collective deductible is X. Whereas if my unit is not damaged by it and you hit me with a deductible portion, my share of the deductible and I have nothing to do with this story, it's going to be much more difficult for me to turn to my insurer and say, the 01 stacked, got damaged. I'm in the 06 stack.

But I'm stuck having to pay my share of a deductible. And deductibles, by the way, could be very significant. In the GTA, for instance, we see in some cases, it's $150,000 or more, right? Here in the Eastern Ontario region, less but still, it's creeping up.

So the objective of these bylaws is to find the fairest and least expensive way of shifting the responsibility, not for the totality of the damage, just for the deductible portion because if we don't have that, then we have to go to all the owners. OK, Graeme, were you keeping an eye on the questions to see if there's a question that fits here?

GRAEME MACPHERSON: Yeah, there's a couple, actually. One of them I'm answering now. But I'll just quit typing, and we can do it live. Proving fault is a challenge, especially for fire sprinkler discharges. It's hard to get an engineer to say Graeme hung his suit hanger from the sprinkler, and it discharged any way around that.

To that, I would say the difficulty with proving fault, I agree with you completely. And that's why we recommend the bylaw like Rod is talking about where it doesn't depend on proving fault. If it can be tracked back, if it can be traced back to it came from within a unit, if it can be sourced from within a unit, we don't have to prove how it happened or whose fault it was.

That's why we feel that an insurance deductible bylaw that's not fault-based is more effective. Another question we got from George. What if the insurance claim isn't filed by the corporation and there's no deductible, technically, what do you do then?

ROD ESCAYOLA: OK, well, and so a couple of things. Sometimes, the corporation won't make a claim because let's say that the damage is $60,000 and the deductible is $50,000, it is possible that the corporation will say, well, we're not going to file a claim to preserve our history. We're going to absorb that $10,000 that we would have to claim from our insurer, but we will turn the deductible to you, George, right?

And so there's at least a recent case, the Oregon case where the courts recognized that ultimately, that decision by the corporation not to make a claim, provided that they don't put the owner in a more difficult situation, so the decision of absorbing the $10,000 in my example, provided that in any event, George, you would have been responsible for the $50,000 under the deductible bylaw, that decision is a reasonable decision. But if your question is-- and that's a valid question-- well, there's no deductible if you don't make a claim.

So I don't have to pay the deductible because it's a deductible bylaw. The way the bylaw is written, it's written in a way that it covers either the amount of the deductible or-- either the deductible or the amount, the value of up to the deductible. So regardless of whether we've made a claim, the portion of the claim that would be within the deductible amount would be shifted to the owner who's either responsible and so on and so forth. Go ahead.

GRAEME MACPHERSON: Then another one is-- and you kind of answered it there, but somebody points out that Section 105 of the Act refers to the amount that is the lesser of the cost of repairing and the deductible. So just to be clear, if your deductible is, let's say, $50,000, and the damage we're talking about only costs $12,000 to fix, the insurance deductible bylaw doesn't let the corporation just charge $50,000 for a $12,000 fix. If it only costs $12,000, then that's the cap of what would be charged back.

ROD ESCAYOLA: Yes, right. Good point. So this bylaw only deals with the actual deductible, right? So it's never about the whole cost to repair the whole thing. And it's up to the amount of the deductible or the lesser or the damage.

There's not going to be a windfall for the corporation to go get the delta between the $12,000 in Graeme's example and the $50,000. It's really how much would it cost to repair this? OK, it's $12,000. Our deductible is $50,000. You're on the hook, buddy. You turn that to your insurer. OK, any other questions you saw?

GRAEME MACPHERSON: I can throw a curveball here. But we do have some preset questions too that we got in advance. So we'll have to get to those. But there's one more good one that I want to do just to have the conversation.

So DSC asks, surely, a declaration statement like, quote, "each owner shall indemnify and save harmless the corporation from any loss, cost, damage, et cetera, which the corporation may suffer resulting from an act or omission of the owner" would cover the corporation, and the owner would be stuck with the deductible. So the question is basically, lots of declarations have what we call an indemnification provision. Doesn't that render a lot of this moot?

ROD ESCAYOLA: Right, and so there's a couple of things here. One of them is that these indemnification provisions you're referring to that is found in the Declaration, they often turn on an act or omission of an owner, right? And the example you gave actually has that language. So the owner will indemnify the corporation for loss resulting from an act or omission by the owner.

So if you're able to demonstrate an act or omission, then, in that case, you're right. You may be able to use the indemnification provision instead. But it's sometimes difficult to demonstrate that. If the toilet leaked, was there an act or omission?

Is it an omission not to inspect your toilet door nut every-- I don't know how often you have to inspect and change the ring, the wax ring. But is that an act or omission? Is that sufficient to trigger this provision? What if the dishwasher just leaks?

What is the act or omission? Is just turning your dishwasher on as you've done every day of your life, is that an act and then it leaks and then you're on the hook? You know what I mean? So these other tools that we put in place, these other bylaws we're recommending don't require that degree of evidentiary demonstration that there's an act or an omission, that there's negligence, not negligence.

And so it simplifies matters a lot. Where does the water come from? Does it come from your dishwasher and so on and so forth. OK, we do have a couple of pre-scripted questions, although just by the number of people online, we haven't had these numbers since COVID.

So just the number of you online and the number of questions we're getting, this is, obviously, a topic of interest or a very difficult one to understand. What I propose we do, Graeme, is we're going to tackle some of these questions. But in the meantime, if you see a good one, a crispy one pop up, maybe they'll jump the queue.

GRAEME MACPHERSON: Roger that.

ROD ESCAYOLA: OK, so the first set of questions are these-- so questions from North York. If you don't have a standard unit bylaw, is this a no fault situation? And is each owner responsible to repair their units? So, Nyla, no bylaw, let's say, in my corporation. Am I responsible to repair my unit?

NYLA: Yeah, so if you're looking at responsibility to repair your unit, it's kind of what I discussed when we started the presentation. You look at what the Act sets out because that's your default provision. And the Act says that the corporation is responsible for maintaining and for repairing the common elements of the units. Then you look at your declaration. Your declaration is going to set out your maintenance and repair obligations as an owner.

So that's where you'll find that information when there is no standard unit bylaw because remember, as Graeme said, the standard unit bylaw really applies to what the corporation is responsible for ensuring in the unit. So, again, that doesn't change the boundaries of a unit. When you're looking at what is your unit and what you're responsible for repairing, that's going to be in your declaration.

ROD ESCAYOLA: Right, so default setting, corporation is responsible to repair the unit. And if you have a bylaw or if your declaration says so, it can modify that. OK, I saw a question that-- well, let's go with the next one. Without an insurance deductible bylaw, when an owner is negligent, is he responsible for the total cost of the repair? And so this is multi-layered. If the question is vis-a-vis the bylaw, the deductible bylaw only deals, only shifts the responsibility for the deductible.

So having a bylaw or not having a bylaw will not have an impact on what the owner will need to pay if they're negligent, right? They will not be on the hook. The bylaw will not impose on them the total cost of the repairs even if they're responsible. However, as-- I forget if it was George who mentioned that. Somebody mentioned that in the question that we discussed a couple of minutes ago. It is possible for the totality of the repair to be shifted onto an owner in certain circumstances.

For instance, if in your declaration you have an indemnification provision that says you have to indemnify the corporation for any damage resulting from an act or omission on your part, and there's a clear demonstrable act or omission on your part that causes damage, that owner may be on the hook for the totality of the damages.

GRAEME MACPHERSON: There's another one in Q&A that kind of goes with this question. We sort of asked there, well, what if the owner's negligent? What happens then? Now, a question from an anonymous attendee in Q&A is if the corporation fails to maintain common elements and that causes damage somewhere, so, for example, if we've got-- you know, let's say we've got townhomes.

And there's a roof that the corporation knows has an issue. And it's consistently showing signs of leaking. And they're ignoring the signs. And they're ignoring being told about it. And then lo and behold, it leaks and it causes all sorts of damage inside the unit not only just to the standard unit but to all the improvements in there, what's an owner's recourse in that situation? And, I mean, Rod, I'll let you go first on that.

ROD ESCAYOLA: Thank you. You're too kind. You're too kind. I want to say a couple of things about that. The first thing I want to say about that is that the deductible by law cannot shift away that responsibility if the corporation has been negligent.

That's the starting point. I will also say this is that this owner may have a recourse if, in fact, that owner is able to demonstrate that this condo corp was negligent and ignored maintenance, roof maintenance year after year after year, and every winter, there's like 6 or 12 or 20 leaks, and they're still not getting it fixed or not fixed properly, then the owner may have a recourse against the corporation in any event.

GRAEME MACPHERSON: I agree. I'll just add for everyone here that, again, just because something happens and a common element leaks or causes damage doesn't necessarily mean there's been negligence. It's a high standard to meet.

And so just because something has happened or even if it's something that you've said you have an issue with and they've maybe looked into it and done a fix but it wasn't necessarily what you would have done, that doesn't necessarily mean it rises to the level of negligence. Before diving into the deep end on that, you'd want to speak with a lawyer.

ROD ESCAYOLA: Right, yeah. OK, and Dora is asking back to the deductible by law. I think she's asking, well, how about the deductible? Who pays the deductible if the leak is generated by a common element. It's coming from the roof, let's say, and it damages three floors.

Well, I go back to my suggestion that if we ask collectively ourselves, who should assume this deductible? No one's at fault. It comes from outside. It comes from a common element. Who should assume the deductible? And in our view, the units that are damaged should be the ones assuming the deductible.

Of course, what we expect them to do is to push it to their own insurer. And there's two reasons for that. One of the reasons is that they're the ones whose units are damaged. They're the ones that will get the new floor. They're the ones that are kind of affected-- I don't want to say benefit because you rarely benefit from that, but they're affected by the situation.

So there's no reason, in my view, to go and knock on someone else's door. But another reason for that is that this owner with a damaged unit will be able or should be able to shift the deductible to his own insurer and add this to his claim. Whereas it's going to be more difficult for the other owners who don't have any damage, it's going to be more difficult for them to turn that to their insurer.

They may have to pay out of their own pocket their share of the deductible. So that's why in our view, it makes more sense to shift the deductible and to apportion it between the units that are damaged. OK, next. Oh, you're on the hook for these ones, Graeme. What's the-- yeah, those are good ones. What is a reasonable and fair deductible amount? Let's start with this.

GRAEME MACPHERSON: Well, what's a reasonable and fair deductible amount? I think it depends who you ask. If you ask me as an owner, I would say that the corporation should have a really low deductible because I don't want to be on the hook for that.

But if you ask me as a director of the corporation, I'd probably say, well, a high deductible is nice because then that's the amount that we can push on to the owner in the event that there's a flood or damage. And I think that the question, really, what's reasonable and fair, it's in the eye of the beholder.

But at the end of the day, it is going to be ultimately set by the insurer. There might be some you can do to influence it one way or the other, but at the end of the day, you will be stuck with what your insurer is prepared to do. Now, that sort of leads into the next question of, well, should a condo then ask for a high deductible amount to lower its own insurance premiums and kind put more risk on the owners?

And there's a sense in which you look at that and think, well, maybe that is in the best interests of the corporation. But we always want to be careful as corporations to treat everyone fairly because if you treat anyone-- the owners unfairly or against their reasonable expectations, then you may be acting oppressively.

And so it's not a great narrative to work with if, you know, corporation passes insurance deductible bylaw allowing it to easily pass the insurance deductible onto the owners and then immediately turns to its insurer and asks for a huge deductible to lower its premiums, and then if something goes wrong and you send your million dollar deductible to someone, it doesn't paint a pretty picture is, I guess, what I would say about that.

ROD ESCAYOLA: Right, yeah. Absolutely. There's a good question. I like this question from Ahmed. And I'm going to bring it at the front of the queue because it's an interesting one here. He says, well, doesn't the act prevail over the declaration and over the bylaws? Yes, it does.

And so if the act prevails over the declaration and the bylaw, how is it that we can pass bylaws that are kind of changing the default setting that Nyla described? And how is it that the declaration can change the default setting that Nyla described, which imposed on the corporation the obligation to repair a unit?

Well, the act is the one that allows the declaration to do this. And the act is the one that allows corporations to adopt a bylaw. So the default setting is set by the act, but the act specifically allows corporations to use the tools that we're discussing now today. So that's why. Do we have time for a couple of more?

GRAEME MACPHERSON: I think so.

ROD ESCAYOLA: Oh, yes. These ones, we get asked these quite often because we usually suggest or promote or recommend both bylaws at the same time. And so often, a question that comes-- and I'll turn that one to you, Graeme-- is if I have a standard unit bylaw, what's the benefit of having also an insurance deductible bylaw? Is it one or the other?

GRAEME MACPHERSON: Yeah, I think we do get this question a lot. I know they're both related to insurance and repair and that type of stuff, but they are apples and oranges. And they do have separate functions and separate uses. The standard unit bylaw, what it does is set what portion of the unit is the corporation required to insure?

And in circumstances where the corporation may have to do any unit repairs, up to what extent must it repair the unit? So that's what the standard unit bylaw answers. Whereas the insurance deductible bylaw does a totally separate thing of set, in what circumstances can the corporation's insurance deductible amount be charged back to a unit as a common expense?

So they both serve different functions. I think they do work really well hand in hand in the event that there is an insurable event. But there are benefits to having both. Obviously, they're both also beneficial by themselves. But it's really not a one or the other situation. And one does not do the job of the other alone.

ROD ESCAYOLA: Right, another question that's going to jump the queue, amazing question by David Fletcher. So he's asking, can we use the reserve fund to cover the deductible payable by the corporation? That's an interesting question. And the answer is a bit more complicated than it may appear at first sight.

So the reserve fund can be used for the purpose of major repair and replacement of common elements. So to me, if what is damaged are common elements, let's say there's $100,000 worth of damage to common elements, the corporation could use reserve fund to pay for that.

Whether you're covered or not by your insurer, it's damaged, you need to repair and replace common elements, you can use a reserve fund. Now, in this case, your insurer will pay $50,000 and will leave to you to pay the first $50,000. Well, that first $50,000 is still used towards the major repair and replacement of common elements.

So you could use the reserve fund. Where you may not be able to use a reserve fund is if the deductible in question is for damage to a unit. Currently, you cannot use the reserve fund to pay for repair and replacement of the units, only the common elements. Now, eventually, that may change. Section 93 Sub 2 is set to be changed whenever. We don't know when.

GRAEME MACPHERSON: That's someday.

ROD ESCAYOLA: Someday maybe. And it basically will provide that the reserve fund will be able to be used maybe in the future for the purpose of major repair of units, common elements, and assets of the corporation. So for now, if we're dealing with damage to a unit, you can't use the reserve fund towards the deductible. I don't know if we have time for another one.

Let's see. Oh, see, I shouldn't have shown it. Now everybody wants me to answer it. OK, very quickly, and that's going to be the last one because we're going to run out of time, the question-- and we get that quite often-- is do EV chargers installed in the garage need to be insured by the owners of the parking spot?

So let's assume, for the purpose of this question, that the parking spot in question is, oh, you know what? We forgot to cover. We forgot to cover how to adopt a bylaw. Like we didn't put the slide, so that's why it wasn't triggered. And that was going to be Nyla. I was thinking Nyla is awful quiet.

Yes, the process to adopt a bylaw, I guess you're going to have to read our blog about that. Graeme, I wonder if you are able to put the blog post in the chat while I answer these steps to adopt a bylaw. So quickly, the answer to the EV charging station, I'm going to say this, owners are responsible to insure their own chattel, your furniture, your car, your charger.

If the charger belongs to you and the question is who should insure that in case it gets damaged and I need to have it replaced, the owner is responsible to insure their chattel, their own possessions, their own property within the unit, in this case, a parking unit.

If the question is who's responsible to insure the car that is being charged and if the car gets damaged, that is, again, the owner that's responsible for that. Now, if the question is who's responsible to insure for collateral damage if the charger or the car itself combusts or explodes or whatnot and it damages a support beam or a column or whatnot, then you need to have a look at the corporations insurer to see what is covered.

And in most cases, it would be covered-- it would have to be paid by the corporation. It wouldn't really be fair to go against the EV owner if it damaged a support column. But having said that, have a look at your declaration. Are we able to demonstrate an act or an omission?

And if that's the case, I mean, if we see that they're sort of holding this whole thing together with popsicle sticks and duct tape, maybe there's negligence on the owner's part. OK, folks. It's 6 o'clock. And so, Nyla, you kind of got away with not having to cover how to adopt a bylaw. We sent the post. When we do post this webinar for you to be able to watch it on demand, we're going to post a link to that blog post.

But the summary of it is this, every bylaw of that type needs to be voted on by the owners at a meeting of the owners. And you need to get 50%, 5, 0 percent at least the majority of all voting units to vote in favor of the bylaw. Sometimes, it's a bit difficult to reach.

OK, our next webinar is going to be on April 3, 2024. It's the first Wednesday of the month. If you have any suggestions for a topic that you'd like us to cover, who knows, maybe insurance episode 3, I'm not sure, or any other topic, please send them our way. We're always looking for good topics to cover. I'm going to go around the table to thank our two panelists, the condo cousins. Maybe if you have a word of advice, Graeme, parting words?

GRAEME MACPHERSON: My parting word of advice is it's important to be aware of what your governing documents are. And for this crowd, I don't think I have to remind them because they showed up to a condo webinar.

But if you do get a notice for a meeting or an AGM where there's going to be a vote on a governing document, go to your meetings anyway. But if there's going to be a vote, really do make an extra effort to show up or vote and be informed about what the governing document changes are going to be.

ROD ESCAYOLA: OK, thank you, Graeme. Nyla, thank you so much. Words of advice before we part?

NYLA: So what Graeme says. Look at your governing documents.

ROD ESCAYOLA: OK, wonderful. Perfect. OK, so next webinar, April 3. You'll need to register again by clicking on the webinar tab. We will post this webinar eventually. But folks, it always takes me a bit longer than I want to get to post our webinars. That's because I'm relying on a team who's very, very, very busy to do their magic. If not, I do it. And so you'll need to register again. So thank you so much. It is now 6:02.

This was episode number 2 on condo insurance recorded on March 6, 2024. Next Sunday, spring forward. Bring your clocks forward to make sure you don't miss either church or your AGM, whatever's coming up next week. And then we're going to have longer days. This is fantastic. That's the best time of the year. OK, so thank you so much, everybody. Have a great evening, and we will see you next month.

You can watch episode 1 of the Insurance in Condoland webinar here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.