A closer look at the Report on Insurance Issues for Stratas: Should the Strata Property Act require strata-lot owners to have insurance that covers payment of a deductible under a strata-corporation policy?

8 May 2019

By Kevin Zakreski

This post is part of a series highlighting key recommendations in the Report on Insurance Issues for Stratas. For other entries in the series, click here.

Brief description of the issue

There are real concerns that rising insurance deductibles could harm strata-lot owners. This potential for harm might even be exacerbated by the previous recommendation. One response to this harm might be to encourage what many strata-lot owners have already done: take out their own insurance against the prospect of having to pay the strata corporation’s deductible.

A proposal for legislation to implement this requirement was considered recently in Alberta. As part of its law-reform project, Service Alberta asked “[s]hould the Act require unit owners to get condominium unit owners’ insurance that also covers the payment of any deductible the owner may be required to pay on a claim made under the corporation’s insurance policy?”

Discussion of options for reform

The main advantage to this proposed reform is that it provides a practical means to support the broader reforms that the committee is contemplating for insurance deductibles in strata properties. Those reforms could be severely undercut if they were to depend, in the face of rising deductibles, on strata-lot owners paying out of their own pockets. Insurance for owners is an effective way to help ensure that the system works for all.

In addition, requiring owners to obtain this insurance likely wouldn’t be a radical departure from the current situation. Many owners already have such insurance, either because they have decided independently to obtain it or because it is one of the conditions imposed through a mortgage.

The main downside of this proposal is that it could prove to be difficult to enforce. It would likely be a challenge for a strata corporation to know whether or not an owner had such insurance. But even if it did, there may be relatively few effective means to compel an owner to carry insurance against a deductible claim. But without an effective enforcement mechanism, any legislative provision could end up being nothing more than a paper tiger.

The proposal would also have the effect of imposing some costs on strata-lot owners and limiting some of their freedom to act. Strata-lot owners who live in strata properties with relatively small insurance deductibles might resent this mandate for these reasons.

The committee’s recommendation for reform

The committee decided that mandating this insurance coverage for owners would be a useful way to shore up its broader reforms for insurance deductibles and to provide needed protection for strata-lot owners and strata corporations alike. The committee was concerned about the problem of enforcing such a requirement. In its view, the best way to ensure compliance is to make the requirement a part of the standard bylaws for strata corporations. This approach might also address some of the concerns about the rigidity of requiring owners to purchase insurance, as it leaves open the prospect that a strata corporation might decide to amend its bylaws and remove the requirement.

While a sizable majority of consultation respondents agreed with the committee, a significant minority of respondents took issue with the committee’s proposed reform.

The committee recommends:

A new standard bylaw should be added to the Schedule of Standard Bylaws that requires a strata-lot owner to have insurance that covers payment of a deductible under a strata-corporation policy.

For more information, visit the Strata Property Law—Phase Two Project webpage or read the Report on Insurance Issues for Stratas.

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