Canada: Insuring Your Condo: Exploring Insurance And Subrogation In Condominium Ownership

Insurance policies protect our various interests such as our homes, vehicles, and personal property where there is potential damage, loss, and/or liability. Insurance policies vary and are available to purchase at different prices and different levels of coverage. Insurance is often a necessary condition for acquiring a variety of things, such as owning a vehicle or obtaining a mortgage.

In the context of a condominium and pursuant to Ontario's Condominium Act, individual unit owners are subject to the rules of their condominium's declaration and bylaws, which together make up the governing documents.¹

How are condominiums operated and organized?

Essentially, all condominiums have a corporation number which creates the condominium corporation. The condominium corporation is a legal entity. A condominium corporation will designate a Board of Directors to make major decisions, such as what renovations should be made to common elements and managing the flow of money in and out of the condominium's reserve fund.

A condominium corporation is created by filing, among other things, a declaration to the Land Registry Office. A unit owner must abide by the declaration, which will set out a list of rules, including rules for insurance.

Ontario's Condominium Act requires that a condominium corporation obtain insurance on its own behalf and on behalf of the owners for damage to the units and common elements that is caused by major perils or the other perils that the declaration or the by-laws specify.²

Major perils covered by a condominium corporation's insurance include fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts.³ Oftentimes, condominium corporations will get "all risk" insurance policies that are usually more comprehensive and suitable for the purposes of the Condominium Act.

Although the province of Ontario does not require individual unit owners to purchase an insurance policy, unit owners may nevertheless be required to do so pursuant to the condominium's governing documents to cover for things such as improvements to their units or personal property.

What is subrogation?

Subrogation is a legal concept that allows one party, typically an insurance company, to step into the shoes of another party and seek reimbursement or recovery for a loss or damages they have already paid. It commonly occurs when an insurer compensates its policyholder for a covered loss and then seeks to recover the amount paid from a third party who may be responsible for causing the loss.

By exercising the right of subrogation, the insurance company essentially assumes the legal rights of its policyholder to pursue a claim against the responsible party, aiming to recoup the expenses it has incurred. This principle helps prevent the policyholder from benefiting twice for the same loss and promotes fairness and cost-sharing among parties involved in an incident or accident.

It is important to note that the insurer cannot subrogate against its own insured.

How do subrogated claims apply to condominiums?

A condominium corporation would likely contain a provision in their governing documents which imposes an obligation on all unit owners to purchase their own insurance policies for their units that would exist separately from the condominium corporation's all-risk insurance policy. This provision would contain a mandatory condition barring any claim of subrogation between its corporation, employees, agents, unit owners, and other stakeholders. This is called a waiver of subrogation.

This means that in the event a unit owner suffers from damages to its property from a source beyond itself but within the same building, and after receiving coverage for the damages, that unit owner's own insurance company cannot make a claim of subrogation against the insured's neighbours or the condominium corporation if there is a waiver of subrogation requirement in the condominium's governing documents, subject to exceptions provided for in the documents.

Another way of understanding the waiver of subrogation rights is to consider it an "allocation of risk between the condominium corporation (which assumes responsibilities for insuring the building), and the owner of the unit (which is responsible for insuring the contents/equipment of the unit). The intention in allocating those risks is that there will not be subrogation between the two parties for a loss to the other's property even if caused by the negligence of the other party."⁴

Conclusion

In conclusion, insurance plays a crucial role in safeguarding our interests, whether it's our homes, vehicles, or personal property, from potential risks and liabilities. In the realm of condominium living, understanding the organization and operation of condominium corporations is paramount.

In essence, the purpose of insurance and subrogation mechanisms are to mitigate risks and promote financial security in condominium living. By adhering to these principles, both condominium corporations and unit owners can navigate potential challenges with confidence.

This blog was co-authored by Articling Student, Toni Pascale, and Summer Law Student, Sanaz Sakhapour.

Footnotes

1. Condominium Act, 1998, S.O. 1998, c. 19

2. Ibid at s. 99.

3. Ibid at s. 99(2).

4. Elite Vertical Blinds, Mfg. Co. v. YRCC No. 696, 2018 ONSC 1000 (CanLII) at para 25.

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.