Spotlight on strata insurance: Should the Strata Property Act require strata corporations to obtain directors-and-officers insurance?
20 September 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
In the strata-property field, directors-and-officers insurance (PDF) is “[i]nsurance that provides coverage for members of [strata councils] against ‘wrongful acts,’ which might include actual or alleged errors, omissions, misleading statements, and neglect or breach of duty on the part of the [strata council].” Commentators have stressed the importance of directors-and-officers insurance coverage. The Strata Property Act pays some heed to this point, by enabling strata corporations to purchase this coverage.
Equivalent legislation in other parts of Canada goes even further than the Strata Property Act. Four provinces’ acts mandate directors-and-officers insurance for strata corporations. (See legislation in Alberta, Saskatchewan, Manitoba, and Ontario.) In view of the acknowledged importance of this type of coverage, should British Columbia follow these provinces’ lead and add directors-and-officers insurance to its legislative mandate?
Discussion of options for reform
The options considered for this issue boiled down to two: either add directors-and-officers coverage to the insurance mandate or retain the status quo.
The case for treating directors-and-officers insurance like property and liability insurance rests on recognizing that it too provides coverage for a significant area of vulnerability for strata corporations. The act provides that a strata corporation functions through its council. In this role, council members are often faced with making difficult decisions, which must meet the requisite standard of care. In the absence of directors-and-officers coverage, the individuals who make up the strata council may be personally on the hook for errors and omissions. If they lack the resources to cover any losses, then the strata corporation and its constituent owners (the parties that are most likely to have claims against council members) could find themselves suffering costly losses.
A mandate for directors-and-officers coverage could also have benefits outside the insurance sphere. It might help with recruitment of strata-council members, who may be reassured to know that the legislation requires this coverage.
The disadvantages of this proposed reform are that it could impose added costs on strata corporations and would limit their flexibility to make decisions on insurance coverage. Very small strata corporations, in particular, might struggle with an addition to the act’s insurance mandate.
These considerations could give support to the status quo. The current provision could be seen as striking the right balance by enabling, but not requiring, directors-and-officers insurance. In this way, it helps bring awareness to the issue, without binding strata corporations to a single solution.
The committee’s tentative recommendation for reform
While the committee understood the concerns regarding added costs and rigidity, it decided that adding directors-and-officers coverage to the insurance mandate would on balance benefit the strata-property sector. The committee accepted the view that a lack of this coverage could leave a strata corporation and its strata council vulnerable to significant losses.
In view of the special position of very small strata corporations, the committee discussed proposing an exemption that would apply to them. While it may be possible to design such an exemption the committee wasn’t convinced of the wisdom of this approach. Even small strata corporations may be exposed to losses in this area. They may also find it more difficult to recover from a loss.
The committee also understands the directors-and-officers insurance is relatively inexpensive, which limits the concerns about its ongoing cost to strata corporations.
Finally, the committee understands that, under the current legislation, the vast majority of strata corporations have opted to have directors-and-officers coverage. In the committee’s view, it’s worthwhile to have the legislation close off the remaining gap. The fact that the majority of strata corporations should not notice a difference from a change in the law was seen as a benefit for this proposal, as it would limit any potential disruption flowing from reform.
The committee tentatively recommends:
The Strata Property Act should require a strata corporation to obtain directors-and-officers insurance.