Spotlight on strata insurance: Should the Strata Property Act expressly assign responsibility for an insurance deductible to a responsible owner?
October 4, 2018
BY Kevin Zakreski
BCLI is running a public consultation on insurance issues for stratas. It is asking for public input into its proposed changes to the Strata Property Act , Strata Property Regulation , and Schedule of Standard Bylaws. For information on how to participate in the consultation please visit the Strata Property Law Project—Phase Two webpage.
This post is part of a series that spotlights issues discussed in the Consultation Paper on Insurance Issues for Stratas . To read other posts in the series please click here.
Brief description of the issue
The Strata Property Act’s provisions on insurance deductibles have created uncertainty and litigation. In part, this is the natural result of a system that appears (1) to rely in large part on a third-party decision-maker to establish liability (by calling on a strata corporation to “sue an owner” to establish liability) and (2) to implicitly invite strata corporations to vary the standard at which liability will be imposed by amending their bylaws.
Similar issues were at play in Ontario’s project on reforming its strata-property law. After noting concerns that Ontario’s act was “unclear about who pays the corporation’s deductible for the damaged property,” it was recommended that “[t]he Act should provide that an owner is responsible for repair costs or the deductible under the corporation’s insurance policy, whichever is lower, as a result of damage to other units or the common elements caused by an act or omission by the unit’s owner or resident.”
Should British Columbia adopt a similar approach as a way to dispel uncertainty and potentially reduce litigation over insurance deductibles?
Discussion of options for reform
The advantages of adopting a proposal like the one discussed in Ontario were hinted at in the framing of this issue. The main virtue of the proposal is that it would lend “greater clarity” to the law. The space that the current law has seemingly provided for strata-corporation bylaws to occupy has created much of the present uncertainty. That space would effectively be closed off, as an express legislative assignment of responsibility would eliminate the rationale for these bylaws. This would bring a measure of certainty and consistency to the law.
It would also likely have the effect of cutting down on litigation over insurance deductibles. Litigation tends to thrive on uncertainty. And, in this case, the need for litigation is given a boost by the express reference in the current provision to suing a responsible owner. Doing away with that reference and setting out a legislative standard for liability should significantly reduce the incentive to litigate issues concerning insurance deductibles.
Finally, it’s worth noting that versions of this proposal have been adopted in other jurisdictions. In addition to Ontario, Saskatchewan, and Manitoba have legislation on this point.
A potential downside of this proposal is the effect it could have on some owners. It’s clear that many strata corporations in British Columbia have property insurance with some very high deductibles, particularly for water damage. These deductibles may be the result of claims history, market conditions, or simply the realities of living in a large, high-rise building. A responsible owner who ends up on the hook for such a deductible could be faced with a crippling debt, one that is out of proportion with what a typical homeowner in a single-family home would ever have to face. An argument could be made that such strata-lot owners are being confronted with something that goes beyond the acknowledged purposes of an insurance deductible, which are usually seen as devices to weed out small-value nuisance claims and to crack down on the potential for fraud.
Another disadvantage could flow from what might typically be seen as one of the strengths of the proposal. One of the proposal’s goals is to cut down on needless litigation by providing a clear legislative allocation of responsibility for the deductible. In some cases, though, this authorization could encourage strata corporations to overreach, leaving owners vulnerable to claims of questionable merit. This could lead to more litigation, which would be particularly frustrating from the owner’s point of view.
Finally, the proposal would limit strata corporations’ flexibility. The current law appears to allow strata corporations some latitude in dealing with insurance deductibles by amending their bylaws. This latitude may be used in some cases to tailor provisions that conform to a strata corporation’s unique features. This flexibility has been lauded in at least one court case.
The committee’s tentative recommendation for reform
In the committee’s view, good points may be made on both sides of this issue. On balance, the committee favoured the proposal to amend the act and expressly assign responsibility for an insurance deductible to a responsible owner. The current law appears to give strata corporations some flexibility in managing this issue, but unfortunately that flexibility has brought with it uncertainty and conflict. Adopting a consistent standard in legislation should dispel that uncertainty and cut down on the amount of litigation over insurance deductibles.
The committee tentatively recommends:
Section 158 of the Strata Property Act should be amended to allow a strata corporation to decide to charge back to an owner, if the owner is responsible for the loss or damage that gave rise to the claim, the lesser of the following amounts: (a) the cost of repairing the loss or damage; (b) the deductible limit of the insurance claim.