strata management chapter19

8/10/2019 Strata Management Chapter19

1/30


2/30

19.1

Learning Objectives

After studying this chapter a student should be able to:

# identify the different types of insurance coverageavailable to a strata corporation;

# identify the insurance coverages that aremandatory under the Strata Property Act;

# understand the difference between propertyinsurance, liability insurance and errors &omissions insurance;

# understand the importance of risk management;

# assess areas of potential risk;# develop a risk management program;# identify the essential types of insurance coverage

required for a building;# understand the principles of subrogation and

co-insurance; and# understand the limitations of insurance for

environmental hazards.

INSURANCE AND RISK MANAGEMENT

Introduction

Everyday living is constantly subject to risk in one form or another, such as the risks of getting wet, falling, beingrobbed, being in an auto accident or having a heart attack. Insurance is available in many forms to provide compensationfor loss or damage or injury. For this, a premium is paid, and the greater the potential risk, the higher the premium willbe.

The Strata Property Act provides some guidance as to the insurance that is either required or should be considered by

a strata corporation. At a minimum, a strata corporation's insurance policy must consist of two components:

(1) Property Coverage:

Section 149 of the Strata Property Act (the "Act") mandates the following property coverage for a stratacorporation (as further discussed under same heading in this chapter):

149(1) The strata corporation must obtain and maintain property insurance on(a) common property;(b) common assets;(c) buildings shown on the strata plan;(d) fixtures built or installed on a strata lot, if the fixtures are built or installed by the owner developer

as part of the original construction on the strata lot; and

(2) Liability Coverage:

Section 150 of the Act mandates the following liability insurance for a strata corporation (as discussed furtherin the chapter):

150(1) The strata corporation must obtain and maintain liability insurance to insure the strata corporation againstliability for property damage and bodily injury.

Copyright: 2014 by the UBC Real Estate Division


3/30

Chapter 19

19.2

In addition to these mandatory coverages, the Act also makes it clear that the strata corporation is free to obtain liabilitycoverage for errors and omissions made by council members (s. 151), and that the strata corporation may obtain optionalinsurance in respect of other possible liabilities (s. 152). A section of the strata corporation created pursuant to Part 11of the Act may also obtain insurance to supplement, but not replace, the insurance coverage taken out by the stratacorporation.

As claims for injury to persons or property damage are commonplace, a strata manager should be thoroughly familiar

with the many forms of insurance potentially applicable to a strata corporation in order to be able to advise the stratacouncil and owners on the coverages that must and should be obtained. There is no standard form of policy wording forstrata corporation insurance coverage; therefore, a strata corporation should review the actual policy wording todetermine the type of coverage the strata corporation has under the policy. It is strongly recommended that such a reviewbe undertaken with the strata corporation's insurance broker, who should be knowledgeable about strata insurance andable to explain and advise on the key features of the policy.

Insurable Interest

Insurable interest is one of the fundamental principles of insurance. The insured must have an interest in the subjectmatter of its policy, or such policy will be void and unenforceable. A person has an "insurable interest" in something

when injury or damage to the insured property would cause that person to suffer a financial loss or certain other kindsof losses. For example, if the house you own is damaged by fire, diminishing the value of the house until the requiredrepairs are done, you have suffered a financial loss resulting from the fire. On the other hand, if your neighbor's house,which you do not own, is damaged by fire, you have not suffered a financial loss from the fire. As a result, you havean insurable interest in your house for which you may obtain insurance, but not in your neighbour's house.

In many cases, the strata corporation itself does not own any strata lots or common property. As a result, if left to thegeneral principles of insurance law, a strata corporation would not be able to obtain an insurance policy for the stratabuilding and common property. Only a strata lot owner would have an insurable interest in the building and theirownership is only to the extent of their strata lot and their proportional unit entitlement in the common property. Leavingowners to insure the building creates the risk that one or more owners may fail to take out any or adequate insurance in the event of a catastrophic loss, there might not be enough insurance money available to rebuild.

To overcome this problem, section 153 of the Act deems a strata corporation to have an insurable interest in the commonproperty, common assets, buildings shown on the strata plan and original fixtures built or installed on a strata lot. Thisenables the strata corporation to place insurance on the condominium buildings and also to make claims under the policyon behalf of the owners.

Property Insurance

As noted above, a strata corporation is required to obtain property insurance on the properties listed in s. 149 of the Act.Property insurance provides protection against damage to property, arising from risks such as fire, windstorm andvandalism. Property insurance policies will typically pay for the cost to repair or replace damaged property.

The broad wording of s. 149 essentially means that a strata corporation must insure the condominium buildings, includingthe strata lots as they were originally constructed by the owner developer. However, it should be noted that a stratacorporation is typically not required to insure the dwelling units on bare land strata plans this is because the dwelling

units typically do not show up on the strata plan.

As part of its obligation to insure property, the Strata Corporation must insure the fixtures built or installed by the owner-developer as part of the original construction of the building. The term "fixtures" is defined under Strata PropertyRegulation 9.1(1) as "items attached to a building, including floor and wall coverings and electrical and plumbingfixtures, but does not include, if they can be removed without damage to the building, refrigerators, washers, dryers or



4/30

Insurance and Risk Management

19.3

C FireC LightningC SmokeC

WindstormC HailC Explosion

C Water escapeC StrikesC Riots or Civil CommotionC

Impact by Aircraft and VehiclesC Vandalism and Malicious Mischief

Figure 19.1

List of Mandatory "Major Perils"

other items". This obligation on the part of the Strata Corporation to insure original fixtures applies even if only onestrata lot in the entire complex has the fixture in question or has a higher grade of fixture than the other units.

Under s. 152(b), a strata corporation may, but is not required to, take out property insurance for fixtures built or installedon a strata lot that are not the original fixtures built or installed by the owner developer. If original fixtures have beenconsistently replaced throughout the building (for example, where a defective toilet was replaced in every strata lot), thestrata corporation should consider obtaining coverage on the new set of fixtures.

In addition to the basic requirement that a strata corporation obtain property insurance to cover damage to certainproperty, section 149(4) imposes two further requirements for property insurance coverage:

(a) The property insurance must be on the basis of "full replacement value"; and(b) The property insurance must insure against "major perils", as set out in the Regulations, and any other perils

specified in a strata corporation's bylaws.

Full Replacement Value

A strata corporation must ensure that its property damage policy contains coverage on the basis of "full replacementvalue" rather than "actual cash value". "Full replacement value" means the cost to replace damaged property in today's

costs without regard for the depreciating value of the property over time. By contrast, "actual cash value" is the currentvalue of the damaged property, once depreciation is taken into account.

To determine the full replacement value for purposes of obtaining adequate insurance coverage, a strata corporationshould seek the advice of a qualified insurance appraiser. Neither the broker nor the strata manager have thequalifications to assess full replacement value. The frequency of obtaining a written appraisal will largely depend on costincreases in the construction market. As a result, the strata corporation and the property manager should consider aspart of the annual review of insurance (discussed further in this chapter) whether an updated insurance appraisal isrequired. Failure to obtain an updated appraisal can result in the property being underinsured, possibly triggering anycoinsurance clause in the policy.

Major Perils

A "peril" is a cause of damage to property that an insurer is either willing or unwilling to insure. At a minimum, a stratacorporation is required to obtain the insurance coverage against certain major perils as set out in the Strata PropertyRegulation.

In addition to the mandatory perils, a strata corporation may obtain insurance on other perils, including any that may bespecified in its bylaws. To ensure consistent coverage from year to year, a strata corporation may wish to amend itsbylaws to add other types of insurance coverage that the owners decide are necessary. A list of other types of insurancecoverage to consider are discussed later in this chapter; however, some of the more important ones include flood, sewerbackup and earthquake coverages.



5/30

Chapter 19

19.4

Figure 19.2

Insuring Agreement

The following is a sample description of coverage that may be provided in an insuring agreement:

All property of every description located within the property boundaries at the location shown on the

Certificate of Insuranceincluding, but not so as to limit the generality of the foregoing, all common

property, individual strata units and individual dwelling units comprising all structures, together with

their additions, extension, attachment and service, and all other property (except as excluded herein)owned by the Insured, or which they are legally liable for or which they may have a responsibility to

insure or in which they have an insurable interest.

On its own, this clause is very broad. As a result, an insurer will usually include a long list of exclusions in thepolicy wording, limiting the coverage by the type of property damaged and the perils insured.

Figure 19.3

Examples of "Property Excluded" Exclusions

C Internationally caused damage;C Land, improvements to land, water, plants and animals;C Sewers, drains, water mains and other similar utilities located beyond the boundaries of the building;C Motor vehicles, aircraft and watercraft;C Money, securities, letters of credit, stamps, passports and other documents that have a negotiable value;C Property that has been illegally acquired;C Personal property of strata lot owners and tenants;C Improvements and betterments made by strata lot owners and tenants;C Art, antique and jewellery;C

Computer data and records;C Electrical devices and boilers; andC Faulty workmanship or construction.

Due to the ongoing prevalence of marijuana grow operations in strata buildings, insurers are now applyingexclusions for damages resulting from these operations.

As property damage insurance policies can come in different forms, it is recommended that a strata corporation seekadvice from an insurance broker in placing property damage insurance.

Exclusions, Exceptions, Endorsements and Extensions

Insurance policy wordings can vary by the insurer, by the year of the policy and by the type of coverage; however, abasic structure exists for most insurance policies. Typically, the insuring agreement or grant of coverage states what the

insurer is prepared to cover under the policy, whereas the exclusions set out the risks that the insurer is not prepared toinsure.

Exclusions usually fall into two categories: (1) risks that an insurer will not insure on the basis of public policy; and (2)risks that the insurer expects will be covered under a different insurance policy.



6/30


19.5

Figure 19.4

Examples of "Excluded Perils" Exclusions

C War, invasion, rebellion, terrorism and other similar events;C Earthquake;C Flood;C Water seepage through basement walls, windows, doors and foundations;C Dampness or dryness of atmosphere, wet or dry rot, changes in temperature, freezing, heating shrinkage,

corrosion, scratching and other similar causes of damage;C Rodents, insects or vermin;C Dishonest acts of the insured, or employees or agents of the insured;C Wear and tear or gradual deterioration, inherent vice or defects;C Costs associated with making good faulty design, materials or workmanship;C Spills, discharges or seepage of a pollutant or contaminant;C Damage caused by cultivating, manufacturing, processing, storing or distribution of drugs, narcotics or other

illegal substances;C Fungi and mould;C Damage caused by explosion (as this is a mandatory peril); and

C Damage caused during a construction project at the condominium complex.

Figure 19.5

Examples of Exceptions

As noted above, an exception is essentially "an exclusion to an exclusion", limiting the potentially negative effectof an exclusion clause. The following are some typical examples of exceptions:

C Damage caused by freezing except the freezing of pipes;C Damage caused by setting, expansion, contraction, moving, shifting, or cracking unless concurrently caused

by a peril not otherwise excluded;C Loss of computer data except with respect to the cost of duplicating the lost data;C Damage caused by "grow ops" or "drug labs" to a maximum of $50,000; andC Loss of art, unless the art is owned by the strata corporation, located on the common property and used for

decorative purposes.

A careful review of exclusions is necessary when deciding on an insurance policy to determine the limitations on thepolicy's coverage. This is in part because the policy may provide for "exceptions" to "exclusions" which has the effectof reducing the negative effect of an exclusion. An exception provides some level of coverage that an exclusion wouldotherwise take away.

Additionally, "endorsements" or "extensions" may be attached to the basic policy to add or subtract coverage.



7/30

Chapter 19

19.6

Figure 19.6

Examples of Endorsements and Extensions

C Common expenses the insurer agrees to indemnify the strata corporation for the strata fees lost during theperiod of time that a strata lot or lots are uninhabitable;

C Arson reward indemnifying the strata corporation for any reward paid out to secure the conviction forsomeone who has deliberately caused a fire at the strata corporation;

C Blanket bylaws paying for the cost of demolishing those parts of the strata corporation which weredamaged by an insured peril (for example) and must be demolished as the result of a municipal bylaw orother similar regulation;

C Preparation of proof of loss the reasonable costs associated with preparing a proof of loss to be submittedto the insurer;

C Expediting expenses additional expenses incurred to expedite the completion of permanent repairs to thelost or damaged property;

C Extra expense additional expenses incurred to allow the strata corporation to resume normal operationsas soon as possible (for example, the cost of using other property or facilities, or extraordinary propertymanagement expenses if approved by the strata corporation);

C Fire department charges costs levied by a fire department to respond to save or protect the insured's

property; andC Master key coverage this coverage will pay for the cost of replacing the locks in a building.

Negotiating with an insurer, with the assistance of the broker before a policy is in place, may allow the strata corporationto reduce or remove the effect of an exclusion in the policy. An insurer may agree to remove an exclusion or to increasethe policy limits with respect to the limited coverage with payment of an additional premium.

Deductibles and Co-insurance Clauses

Most insurers add a deductible to insurance policies to encourage risk management on the part of the insured and to

discourage the insured from making a claim on their insurance policy. A deductible is the amount that the insured mustcontribute to the cost of repairing or replacing damaged property. Most policies provide for different levels ofdeductibles for different types of claims.

There is a duty on a strata corporation not to voluntarily agree to a higher deductible as a way of trying to reduce thepremiums payable for the insurance coverage. In Miluzzi v. York Condominium Corp. No. 60, the Ontario Courtsuggested that, if an insurance deductible was excessive, it could be argued that a condominium corporation has failedin its duty to place adequate insurance on behalf of the owners.

The deductible will typically be applied by the insurer on a "per occurrence" basis. As a result, depending on the causeof the losses and the policy wording, more than one deductible may apply. This was recently confirmed in the BCSupreme Court's decision in Owners of Strata Plan LMS 3904 v. Commonwealth Insurance Company. This case arose

from the discovery of marijuana grow-ops in 30 different strata lots of the strata corporation. As the plaintiffs seekinginsurance coverage could only prove that 9 of the grow-ops were part of a coordinated scheme, thereby constituting asingle "occurrence", the Court found that 1 deductible applied collectively to the units affected by that scheme. Theremaining units were all each subject to a separate deductible as they were all treated as separate "occurrences". With22 separate deductibles at $50,000 each, the total deductibles payable exceeded $1.1 million.

A property policy may also contain a co-insurance clause which protects the insurance company in instances where abuilding is insured for less than its full replacement value. If a building is underinsured, whether through a deliberatedecision or the negligence of the building owners and the owner subsequently makes a claim against the property policy,



8/30

Insured value

Replacement value

$3 million

$5 million


19.7

As a Strata Manager...

Ensure that an updated insurance appraisal on all of the property to be insured is carried out regularly(particularly when construction costs are rising quickly) to avoid the adverse effect of a co-insurance clause, asset out above in our example.

To further minimize the risk of underinsurance between appraisals in a rapidly rising construction market, thestrata corporation should try to secure guaranteed replacement coverage as part of its property policy.

the full amount of the loss will not be paid by the insurer. As shown in the example below, the co-insurance clause actsto make the building owner themselves carry a determinable portion of the risk.

Figure 19.7

Example of Co-insurance

Facts: A building is worth $5 million = Replacement Value

The owner insures for $3 million = Insured Value

Cost of repairs $1.75 million = Cost of Repairs

Formula and Calculation:

Cost of Repairs = Insurer's contribution

$1.75 million = $1.05 million

As a result of the co-insurance clause, the owners will have to raise $700,000 ($1.75 million minus $1.05 million),in addition to any insurance deductible, to pay for the strata corporation's contribution to the repair costs.

Owners', Tenants' and Occupants' Insurance

As noted earlier, a strata corporation's insurance policy typically provides property insurance for the common property,common assets and for strata lots as they were constructed by the owner developer. However, this coverage does notinclude every property damage loss that an owner, tenant or occupant may suffer. Consequently, section 161 of the Actspecifically permits an owner of a strata lot to obtain and maintain insurance for loss or damage to the owner's strata lotand fixtures, not already insured by the strata corporation and for amounts that are in excess of amounts insured by the

strata corporation. In addition, owners, tenants and other occupants need to insure the personal property they own thatis not covered under the strata corporation's insurance policy.



9/30

Chapter 19

19.8

Figure 19.8

Types of Owner's Insurance Coverage

C Owner's contents of a strata lot (i.e. furnishings, personal items, clothing, electronics, dishes, linens, etc.);C Alterations or upgrades to the original construction of the strata lot;C Living costs where the strata lot becomes uninhabitable;C Coverage in the event of a shortfall or an exclusion in the strata corporation's policy:

- If the strata corporation's property insurance coverage proves insufficient to pay for the full costof the repair or replacement, resulting in the need for a special levy to make up the shortfall, thestrata lot owner's policy may provide that the strata lot insurer will pay the strata lot owner's shareof the special levy;

- If the strata corporation's insurance coverage excludes a peril, such as earthquake coverage, thestrata lot owner's policy may include coverage for damage caused by the excluded peril.

C Loss of rental income for an owner, where the strata lot cannot be rented out; andC Payment of or contribution to any deductible levied against a strata lot as the result of a claim made under

the strata corporation's insurance policy.

As a Strata Manager...

Inform strata lot owners, on an annual basis, of the limitations on the strata corporation's coverage and remind

them of their right to obtain their own insurance.

Be mindful that, under the Act, a strata corporation has no authority to compel an owner to purchase propertyinsurance for those items that would otherwise be covered under a strata lot owner's insurance policy. However,if an owner is required to seek the approval of the strata corporation for alterations to his or her strata lot or tothe common property, the strata corporation may, as a condition of any approval, require that the owner obtaininsurance for the alteration.

Similarly, the Act prohibits a strata corporation from requiring that an owner insert terms in a lease agreement.A strata corporation therefore cannot adopt a bylaw compelling an owner to include as a term of the lease arequirement that an occupant or tenant of a strata lot obtain insurance coverage. Moreover, a strata corporationcannot make such a term a condition of approval of any rental where rental restriction bylaws have been adopted.

Nevertheless, tenants and occupants should be advised that they are responsible for obtaining their own insurancecoverage for their personal property.

The parties entitled to the benefit of the insurance policy required by the strata corporation under section 149(1) of theAct are not limited to the strata corporation. The Act provides that the "named insureds" also include the owners, tenantsand other persons who normally occupy a strata lot, regardless of what the terms of any insurance policy provide. Itshould also been borne in mind that each owner's payment of strata fees contributes to the payment of premiums of thestrata corporation's insurance policy. As a result, if the strata corporation refuses to make a claim under the policy fordamage to an owner's strata lot, the owner may report the claim directly to the insurance company.

Paying out on a Property Damage Claim

An insurance company may pay out insurance proceeds in one of two ways. In many cases, where a property damageclaim has been made on the strata corporation's insurance policy, the insurer will, with the express consent of the stratacorporation, pay the contractor directly for the cost of repairing or rebuilding damaged common property, common assetsor strata lots. Alternatively, the insurer may pay the insurance proceeds directly to the strata corporation.



10/30


19.9

Figure 19.9

Examples of Types of Claims Covered under a Liability Policy

C A mail delivery person slips and falls on newly mopped floors in the lobby of a strata corporation, injuringherself. If the claim is approved by the insurer, the strata corporation's liability policy will pay any damagesthat are payable to the injured individual, as well as the strata corporation's legal costs in defending theclaim.

C In a fire accident at a strata building, fire spread to the building next door, damaging parts of the building.If the claim is approved by the insurer, the strata corporation's liability policy will pay any damages thatare payable to the owner of the building next door, as well as the strata corporation's legal expenses, if any,to defend the claim.

If the insurer pays out on the latter method, it is obligated by s. 156 of the Act to pay the insurance proceeds to aninsurance trustee designated by the strata corporation's bylaws. If the bylaws do not appoint an insurance trustee, theinsurer is required to pay the insurance proceeds directly to the strata corporation, which the strata corporation must thenhold until the strata corporation decides whether or not to repair or replace the damaged property. The strata corporationis obligated to use the insurance monies to repair or replace the damaged property "without delay" unless the stratacorporation, by way of a vote of the owners at a general meeting, decides against repairing or replacing the damagedproperty. Such a vote must be held within 60 days of the strata corporation's receipt of the insurance proceeds. Keep

in mind that many property policies provide that, in the event that the insured decides against repair or replacement, theinsured would only receive the equivalent of the "actual cash value" of the damaged property. As previously noted, thedifference between "full replacement value" and "actual cash value" may be quite significant depending on the age andcondition of the property before the incident giving rise to the insurance claim.

If the strata corporation decides not to repair or replace the property, the strata corporation must continue to hold themoney in trust on behalf of anyone who has an interest in the money, pending distribution of the funds. Persons whomay have an interest in the insurance proceeds include the holder of a registered charge (i.e. a lender who has loanedmoney by way of mortgage to permit the strata lot owner to purchase his or her strata lot). There is a presumption thatthe funds will be paid out in accordance with each person's interest in the money. The Act does not indicate how tocalculate each person's interest and there have been no court cases to date interpreting the applicable provisions of theAct. As a result, there are several potential options on paying out the funds, including (1) payment on the basis of unit

entitlement; (2) payment on the basis of the value of the strata lot; or (3) payment on the basis of the cost to reconstructthe strata lot. Alternatively, an application may be made to the BC Supreme Court by an owner, a registered chargeholder, an insurer or any other person the Court considers appropriate, to ask the Court to decide on the distribution offunds. It should be noted that the concept of "deemed destruction", which existed under the Condominium Act, no longerexists under the Strata Property Act as a result, the deemed destruction schedules included in the strata plans created

under the Condominium Act have no application in distributing insurance proceeds.

Liability Insurance

The second compulsory component of a strata corporation's insurance policy is liability coverage. This coverage is takenout to insure the strata corporation against the risk of claims being made by a third party for property damage or bodilyinjury arising from the negligence of the insured. Liability insurance does not respond to claims if the insured

intentionally caused the damage giving rise to the claim. Property damage is typically defined as "physical damage totangible property of others, including all resulting loss of use of that property, or loss of use of tangible property thatis not physically damaged", whereas bodily injury is typically defined as "any physical harm, including sickness ordisease to the physical health of other persons".



11/30

Chapter 19

19.10

Figure 19.10

Examples of Common Exclusions

C Pollution, mould or asbestos related claims;C Claims arising from liabilities assumed by contract;C Claims for personal injury (which is typically defined in insurance policies to relate to claims for libel and

slander; false arrest and detention; wrongful entry or eviction; malicious prosecution; invasion of privacy);C Claims for bodily injury suffered by employees;C Claims for bodily injury or property damage caused by an aircraft or motor vehicle;C Damage to property owned by or entrusted to an insured;C Claims related to professional liability or malpractice;C Claims related to Worker's Compensation, Employment Insurance or other employment related matters.

The Strata Property Regulation prescribes that the minimum amount of liability coverage that a strata corporation mustobtain is $2 million. However, as a catastrophic bodily injury claim can result in damages in excess of $2 million, allstrata corporations should consider obtaining more than $2 million coverage, particularly if the strata complex hasamenities such as a gym or swimming pool. The owners are responsible for any shortfalls resulting from insufficientliability coverage.

As is the case for property insurance, the parties entitled to the benefits of a liability insurance policy are the strata

corporation, the owners and tenants from time to time of the strata lots shown on the strata plan, and the persons whonormally occupy the strata lots. Therefore, if the strata corporation declines to make a liability claim under the policy,any of the aforementioned parties may report the claim directly to the insurance company.

Exclusion, Exceptions, Endorsements and Extensions

Liability coverage is generally limited by a number of exclusions, much like property coverage. Similarly, it may bepossible to negotiate with the insurer to limit the broad effect of exclusions through exceptions, endorsements orextensions to the liability policy.

Owners', Tenants', Occupants' and Other Persons' Insurance

To further protect an owner of a strata lot, the owner may opt to obtain liability insurance for claims arising from theirown strata lot or for liability claims that may arise against an owner with respect to their conduct off the condominiumpremises. In addition, the owner may obtain supplemental liability insurance to cover claims occurring on commonproperty to protect the owner in the event the strata corporation is underinsured or uninsured for such claims.

As is the case for property insurance, tenants and other occupants should be advised that they are responsible forobtaining their own liability insurance for the consequences of their own actions within the strata lot and off thecondominium premises.

A strata corporation should take steps to ensure that contractors and employees are covered for both liabilities causedby the contractor or employee, as well as claims for bodily injury to the contractor or employee. Typically, a stratacorporation's insurance policy will respond to claims for injury to contractors but not for injuries to employees.Regardless, a strata corporation should ensure that all contractors have obtained and maintain WorkSafe BC coverageto cover any injuries to the contractor or its workers, as well as liability coverage for injuries or damages caused by thecontractor. Likewise, a strata corporation should itself obtain coverage through WorkSafe BC for any injuries to anemployee of the strata corporation arising during the course of that employee's duties.



12/30


19.11

It is strongly recommended that a strata corporation cautiously negotiate all contracts and not assume any liabilities causedor suffered by the subject contractor, as there is typically an exclusion clause in most insurance policies for liabilitiesassumed by contract. If a contract requires that the strata corporation insure the contractor, the strata corporation willneed to add the contractor as an "additional named insured" on the policy.

Risk Management

In and around a condominium complex, it is possible to identify many potential risks, as well as the steps that can betaken to eliminate or at least reduce them. This process is called "risk management". It is not something you do onceand forget about; risk management is a continuing process, and should be viewed as complementary to any insurancecoverage.

Before an insurance company will undertake to insure a building, it will want to assess its exposure to future claims.This will involve not only a physical inspection of the building, but also an investigation into the number of past insuranceclaims and the reasons for them. In addition, when assessing its potential risk, the insurer will look at the nature of thebusiness or businesses in the building, the standard of general housekeeping, as well as the degree of fire protection inthe building and the management's attitude towards fire prevention. There is therefore an onus on the strata managerto work with the strata corporation to minimize the number of claims made against the insurance if at all possible. Thiscan be achieved by developing a positive risk management program, which will entail identifying all potential hazardsand risks (both within the building and outside) and removing or neutralizing the identified hazards and risks.

Loss Exposure

The types of insurable losses which might become the subject of a claim against a strata corporation can be divided intothree categories.

1. Property damage:

(a) to the building, its machinery, equipment and contents; or(b) to third party property belonging to employees, contractors, visitors and adjoining property owners.

2. Personal injury:

(a) to owners, tenants and occupants;(b) to clients, customers or other visitors to the building;(c) to building staff;(d) to the staff of the owners, tenants and occupants;(e) to contractors and their employees; or(f) to other persons, such as couriers, delivery people, etc.

3. Financial loss:

(a) caused by business interruption; or(b) caused by loss of rental income.

Developing the Risk Management Program

A risk management program should be developed in the same way as a preventive maintenance program. Developinga program necessitates a complete inspection of the building, parking facilities and surrounding areas for the identificationof potential risks and hazards. Risks may be identified in common areas, parking areas, parkades or landscaped areas.A checklist should be used to ensure a systematic inspection, and to record all potential risks when identified. Even after



13/30

Chapter 19

19.12

remedial action has been taken to eliminate the risks identified, regular inspections should be made to ensure thatchanging conditions are reflected in the checklist.

The Property Inspection

The objective of the property inspection is to enable the strata manager to identify the risks or hazards which:

(a) could be instrumental in causing damage to the building or its operating equipment; or(b) could cause bodily harm or injury to any persons occupying, visiting or working on or about the property.

Assessing the Risks

Fire

The greatest risk to any building is probably the risk of a fire. Fire may be caused by a mechanical defect, such asoverheated equipment or an electrical short circuit, or by human carelessness, such as not extinguishing a cigarette buttor inappropriate handling of a flammable liquid.

Both fire protection and fire prevention measures are needed to reduce the possibility of fire. Fire protection andprevention measures should include educational programs for those persons occupying the building and for building staff.Educational programs should both provide instruction in emergency procedures and advise as to how to reduce thepossibility of fire due to human error or carelessness.

Fire Protection

There are two equally important categories of fire protection, namely active and passive protection.

(a) Active Protection

Included in this category are fire alarms, smoke detectors, heat detectors, annunciator panels (whichidentify the location of a fire when an alarm is triggered), sprinkler systems, hydrants, hose stands andhoses, and hand-held extinguishers.

(b) Passive Protection

This category can be divided into two subcategories:

(i) utilization of fire walls, fire separations, fire resistant construction and finishes, fire doors andfire escapes; and

(ii) preparation of fire safety plans for tenants, and emergency procedures for building staff (to be

included in the Emergency Procedures Manual).

Fire Prevention

There is an old adage, "an ounce of prevention is better than a pound of cure", that correlates with fire prevention.Anything that can prevent a fire from starting or can provide warning should a fire start, coupled with the means toextinguish the fire, is indeed "an ounce of prevention", and represents a reduction in the risk.



14/30


19.13

The following considerations are essential for achieving an acceptable level of fire prevention.

(a) A sprinkler system will stop a fire from spreading and, as an additional benefit, insurance premiumsare generally reduced for a sprinklered building. These two factors should be drawn to a buildingowner's attention along with the recommendation that a sprinkler system be installed in any buildingthat does not already have one. In some jurisdictions, it is mandatory to install sprinklers in residentialand commercial buildings.

(b) Smoke detectors and heat detectors give early warning of fires and can save lives. Are there any inyour building? If not, persuade the owner to install some. If they have been installed, do they functionproperly and are they tested regularly?

(c) Are there hose stands and hoses in the building? In what condition are the hoses? Are they checkedregularly?

(d) Hand-held fire extinguishers are effective on small fires. Are there any in your building? Are theyfully charged?

(e) Does the fire alarm system in your building work? Is it regularly tested? It is essential that alloccupants of a building are warned when a fire occurs.

(f) Have proper garbage containers been supplied? Are they located a safe distance from the building?(g) Are regular checks made to ensure that no paper, cardboard or other flammable materials are stored

on the premises? If flammable materials must be stored, are they stored in such a way as to minimize

the risk of fire?(h) Are stacked materials kept clear of all sprinkler heads?

(i) Ensure that all passageways and exits are kept clear at all times and that exit signs are illuminated andeasy to see.

(j) Ensure that all emergency lighting units are functional.(k) Ensure that mechanical rooms are kept clean and free from oil leaks and spills.(l) Ensure that all machinery and equipment is properly lubricated and maintained to prevent overheating

of bearings and other moving parts.

All the foregoing considerations can prevent fires and should not be neglected. Regular inspections and checks mustbe combined with the preventive maintenance program as part of risk management.

Your risk management program should establish an inspection schedule along the following lines:

1. Daily Inspect all valves controlling the fire protection water supply and check the annunciator panel toensure that the "power on" lamp is lit.

2. Monthly Inspect all fire doors, emergency lighting, hand-held fire extinguishers and hose cabinets and testthe fire alarm system and the emergency generator.

3. Quarterly Conduct a fire drill and test the smoke and heat detectors.4. Annually Test the fire alarm and voice communication systems, fire hydrants, sprinkler systems and

emergency lighting.5. Every two years Have in-house hoses pressure tested. There are fire equipment companies who will

perform the testing and supply temporary replacement hoses.

Environmental Hazards

In recent years, there has been a growing awareness of environmental hazards. Hardly a day passes without a news itemreporting some environmental disaster, usually on the scale of an explosion causing a discharge of toxic fumes or aderailed tank car containing toxic chemicals. What one does not hear about are the daily minor incidents involvinghazardous or toxic products that are similarly potentially harmful to human beings.



15/30

Chapter 19

PCBs (polychlorinated biphynls) are toxic compounds formed as waste in industrial processes.1

19.14

Government, at all levels, has developed both statutory and regulatory standards to reduce the exposure of the populaceand the environment to hazardous and toxic substances. The federal government and the provincial governments haveintroduced environmental protection legislation. Cities and municipalities have established by-laws dealing with thedisposal of toxic wastes and with emissions control.

The strata manager has a responsibility to implement the provisions of statutes, by-laws and regulations as they relateto the day-to-day operation of a building. The first step for a strata manager is to identify all of the potentially hazardous

materials either installed in a building or used for maintenance purposes. For example, although it is not generally knownthat the ballasts in fluorescent light fixtures contain a small amount of PCBs , disposal of old ballasts has to be given1

special attention by the strata manager.Some of the most common hazardous materials which might be encountered are:

C asbestos limpet spray or pipe insulation;C PCBs, including capacitors, ballasts and transformers, whether in use or stored;C pesticides and herbicides;C cleaning products used by the janitorial staff;C gasoline and oil storage tanks, above or below the ground;C urea formaldehyde foam insulation;C air emissions; andC drums or other receptacles containing cleaning solvents, gasoline and associated products.

Check the labels on all containers to determine if there are any hazard or toxicity warnings. All staff using any of theseproducts must be instructed in their proper use and disposal. Particular emphasis must be placed on:

(a) the proper storage of hazardous materials;(b) the correct method of handling hazardous materials; and(c) the regulations for the disposal of any hazardous or toxic waste.

The Operations Procedure Manual for a building must include specific instructions and procedures for the storage,handling and disposal of any hazardous or toxic materials used in the operation of the building.

Equally important are the emergency procedures to be followed in the event of spillage of hazardous materials ordischarge of toxic fumes. All building staff must be familiar with these instructions and procedures and should be testedfrom time to time to ensure that they know what to do in an emergency. This is all part of safety and security planningbut also relates to risk management and assessment. Details of the workplace hazardous materials information system(WHMIS) are included in a later chapter.

A strata manager should clearly understand the potential liability that is associated with the use and disposal of hazardousmaterials. Members of the building staff may suffer injury or possibly long term health problems from mishandling suchmaterials. In addition, persons who occupy a building and members of the public might also be injured and must beconsidered in a building's operating plan. If an accident were to occur and it was found that there were no establishedinstructions or procedures, this could be viewed as negligence on the part of management.



16/30


19.15

Vandalism and Malicious Mischief

It is very doubtful that there is any building to which the public has access that does not suffer from vandalism in someform or another. This is therefore an area in which insurance claims are quite frequent, and as a result, premiums anddeductibles are high. Vandalism is not always easy to eliminate but some effort can be made to limit the incidence andimpact of any such incidents.

The most vulnerable areas of a building are typically washrooms and elevator cabs, and to some extent the more remoteparts of common areas. Damage frequently encountered includes the breaking or abuse of washroom fixtures, andgraffiti on walls, partitions and in elevator cabs. The first step that can be taken to limit vandalism is to arrange regularsecurity checks by maintenance, janitorial or security staff. Next, as far as possible, install vandal proof fixtures andfittings in the washrooms; for example, having hot air hand dryers instead of paper towel dispensers or roller towels.Wall finishes should be as durable and scratchproof as possible; for example, ceramic tile is one of the most difficultfinishes to scratch.

Pressure Vessels

Every building contains a number of pressure vessels, such as boilers, hot water tanks and compressors. Pressure vesselsmust be maintained and monitored to prevent the danger of explosion. The explosion of a pressure vessel might havea number of consequences:

1. the explosion may cause property damage, damage to other equipment or perhaps injury to persons;2. if a boiler explodes, it may also shut down the heating system;3. if a compressor explodes, it may shut down the heating system or put the sprinkler system out of operation;4. if a hot water tank explodes, not only will the hot water supply be interrupted, but there will also be flooding

until such time as the water is shut off.

In each of the above cases. there will be the cost of repairs to the unit that exploded or even the cost of replacement.In addition, there may be repairs required for property damage. In the case of personal injury, third party liability

insurance would cover any claims. As will be discussed in further detail below, boiler and machinery insurance mustbe obtained to deal with the costs of repairing or replacing a pressure vessel that has exploded.

As part of the risk management program, all pressure vessels should be identified and their location plotted on a planof the building, as well as the location of any shut off valves connected to the particular unit. Additionally, regularchecks should be made of all pressure vessels, and the date, time and pressure should be recorded.

Third Party Liability Risk

All buildings have potential hazards that may cause bodily injury. Some of these hazards can be identified, others maynot be so obvious. The strata manager, on behalf of the owner, owes a duty of care to all who enter the building. A

strata manager therefore has a responsibility to identify and remove any potential defects or hazards. This requiresfrequent inspections of areas of a building which are accessible to building occupants or to members of the public whovisit the building.

Potential hazards include the following:

C ice and snow on sidewalks and parking lots;C wet floor surfaces;C highly polished floors;C poorly defined steps;



17/30

Chapter 19

19.16

C Extended coverageC Earthquake

C FloodC Plate glassC Pressure vesselsC Machinery and equipment

C Sewer backupC Sprinkler leakage

C Loss of incomeC Building contentsC Third party liabilityC Environmental liability

Figure 19.11

Insurance Coverage to Consider

C no handrails by steps and ramps;C slippery ramps or inclines;C badly placed low planters;C unpainted curbs and parking lot dividers;C sunken planter or seating areas;C seating that may tip over;C low branches on shrubs and trees;

C torn carpeting; andC malfunctioning door closers.

The list can go on and on. What is important is that the strata manager and all building staff be constantly on the lookoutfor potential hazards. Upon identifying any hazard or defect, immediate action should be taken to eliminate it before itcan cause anyone bodily injury.

Risk Management in Summary

Effective risk management will reduce the number of insurance claims made with respect to a building. This, in turn,will ultimately be reflected in comparatively low premiums and deductibles. A risk management program that is directedat preventing fires, vandalism, insider crime, property damage, personal injury and financial loss is, therefore, one ofthe obligations of an efficient strata management operation.

Taking Out Insurance Coverage for a Strata Corporation

The matter of risk management has been reviewed as it relates to preventing or reducing claims in respect of specificareas of coverage. In addition to setting a high standard of management that contributes to a low loss exposure, a stratamanager must also consider (ideally in conjunction with the insurance broker) the various types of insurance coveragethat should be obtained as part of advising a strata corporation and its owners.

Types of Property Insurance Coverage

In addition to the list of major perils provided earlier in the chapter, there are various types of insurance coverage thatshould be considered for all buildings. These are listed in the box below. The coverage for any particular building willdepend on a number of factors including construction, age, location and use.

There may be other specialized insurance coverages required by the particular circumstances of the building. Forexample, in some high-end buildings, there are valuable works of art displayed in the entrance lobby, or special art showsthat are held for specific periods of time. Most property policies limit the value of the art that is insured under the policyand it may therefore be necessary to obtain additional coverage specifically for the valuable art on the building premises.



18/30


19.17

Having established the coverage required, the broker should be asked to shop around to obtain the best quotation on thepremium, as there is considerable variation between insurance companies. It is important that the strata manager beadvised on exclusions, exceptions and deductibles, because a premium may be attractively low simply because ofsignificant restrictions on coverage within the policy.

A strata manager must be extremely careful regarding making any recommendations to the owners on insurancecoverage. In fact, it is often prudent for the strata manager to defer such recommendations to the insurance professionals,

thereby limiting the strata manager's role. Insurance in general may be discussed with an insurance broker, but thespecific requirements may better be presented to the strata council or corporation by the insurance broker directly.

Insurance is a complex business and requires expertise which only a qualified insurance broker can provide. Thisbecomes more apparent as we review the different types of coverage.

Fire Insurance

The greatest risk against which a building must be insured is damage by fire.There is considerable variation in fireinsurance premiums depending on: the age of the building; the type of construction, whether the building is sprinklered,whether the building is protected by smoke and heat detectors, whether the alarm system is monitored by the firedepartment or a security service, the proximity of the nearest firehall, and the distance to the nearest fire hydrant.

Extended Coverage

Beyond obtaining insurance for fire, the Act requires that a strata corporation insure against a number of other perils.Extended coverage applies to a variety of potential causes of property damage or loss, such as windstorm, hail, explosion,riot and civil commotion, impact by aircraft or vehicles, and smoke. These are some of the generic headings used. Asalready mentioned, care must be taken to ascertain what exclusions, exceptions or deductibles are applicable in a policy,and extended coverage in particular should be scrutinized.

Vandalism and Malicious Mischief and Employee Dishonesty

As noted previously, in virtually every building, you can expect some vandalism. Vandalism is a mandatory insuranceperil under the Act. Because there are so many claims against insurance, deductibles for vandalism claims may be high.In most instances, the cost of repairs for minor damage or for removing graffiti is less than the deductible and is typicallyaddressed as an operating expense of the strata corporation. Nevertheless, insurance coverage for vandalism must beobtained because, on occasion, the cost of replacing fixtures or of repairing major damage will be expensive.

This coverage will usually contain some exclusions, such as time limitations if a building is under construction or is leftvacant. As with all insurance, the amount of the deductible has a direct relationship to the amount of the premiums paid.

Crime may also be committed by an "insider". Examples of insider crime include loss of money, securities, and otherproperty caused by the fraudulent or dishonest act of a strata corporation employee. Checks and balances should be putin place to ensure that employees are being monitored to prevent such crimes from taking place. In addition, any stratacorporations with one or more employees should consider adding employee dishonesty insurance to their overall

insurance policy.

Earthquake

In areas which are susceptible to earthquakes, such as the coastal region of British Columbia, it is prudent to obtainearthquake insurance. The earthquake endorsement provides coverage for structural damage to foundations, walls, roof,etc., that is directly attributable to the earthquake. It does not, however, cover damage caused by explosion, floodingof any nature, tidal wave, high water or waterborne objects, whether or not caused by or attributable to the earthquake.



19/30

Chapter 19

19.18

There will need to be a correlation between earthquake and fire coverage. If a gas line ruptures because of anearthquake, the resulting repairs are covered under earthquake insurance. If, as a result of gas escape, the buildingcatches fire, then the cost of fire-related repairs to the building is covered under the fire insurance.

Plate Glass

Insurance for plate glass breakage should provide for coverage for all windows on the exterior of the building, as well

as any other windows inside the building that form part of the common property.

Pressure Vessels

Every building has some form of pressure vessel in it, even if only a hot water tank. Most buildings contain more thanthat, and will typically include boilers for the heating system, compressors for the heating system and for maintainingpressure in the pipelines of "dry" sprinkler systems, pumps, steam pipes and numerous hot water tanks.

As explosions are typically excluded perils under a property policy, the strata corporation must obtain separate insurancefor the risk posed by the explosion of a pressure vessel. In addition, boiler and machinery insurance should cover repairor replacement of the pressure vessel, as well as repair of the building and other items of machinery and equipment.Boiler and machinery policies provide insurance coverage for these types of claims if the claim arises from a sudden andaccidental failure with accompanying property damage. Coverage against bodily injury would usually be covered by thethird party liability insurance.

Machinery and Equipment

Many buildings (and high-rises in particular) utilize expensive and sophisticated machinery and equipment to provideheating and air conditioning, as well as to operate a number of elevators.Despite a well planned and well executed preventive maintenance program, a major breakdown will occur from time totime and extensive repairs will be required to rectify the damage. Worse still, the replacement of a major unit may berequired. A repair bill running into thousands of dollars will likely cause a serious overrun on the operating budget andadversely affect the cash flow for the building. For example, one of the big electric motors used in an air conditioningsystem can cost $10,000 or more to replace.

Insurance against these major mishaps is available and obtaining coverage therefore merits serious consideration. Despitethe obvious value of such insurance should a claim arise, the building owner's decision may be that the risk of anythingserious happening is remote, and that therefore this form of insurance is an unnecessary expense.

Water Damage

Water leakage can come from many sources and can cause considerable damage in a very short period of time. Leakagecan be particularly damaging if it occurs when there is no one around to see the leak or the resulting damage.

Source of leakage are numerous and can include any of the following:

C broken water lines;C hot water tanks;C radiators in a heating system;C heat exchangers;C air conditioning systems;C roof leaks;C open doors or windows;C improperly sealed window frames;



20/30


19.19

C skylights;C internal fire hose connections; orC faulty washroom fixtures.

In a high-rise building, a leak is usually not confined to the floor on which it occurs, and can quickly find its way to anynumber of floors below. Unless the flow can be stopped quickly, the resulting damage can be extensive, including ruinedpaintwork or other wall finishes, staining and/or shrinking of carpeting, lifting of parquet flooring, and damaged

furniture. Insurance against water damage is essential as water escape is a frequent occurrence. As a result, water escapeis a mandatory peril under the Act.

Sprinkler System Leakage

Typically, the coverage for sprinkler leakage will be included in the water damage endorsement. However, if a sprinklerhead is accidentally damaged or triggered by a fire alarm or by a fire, the volume of water released is typicallyconsiderable and flows until the system can be shut off. The type of damage that can occur is the same as outlined underwater damage, but potentially on a much greater scale. There can also be leakage from joints in the system or from burstpipes if freezing occurs.

Loss of Income

Anytime a building is subject to severe damage due to fire, explosion, flooding or other causes, some or all of the personsoccupying the building may be required to leave their premises until the repairs are completed. If the strata corporationis leasing any premises, the corporation should ensure that its insurance includes coverage for any loss of income arisingbecause a tenant has to vacate the property. In addition, owners should be advised that, if they suffer a financial lossbecause of the loss of a tenant, the strata corporation's insurance will not cover these claims.

Similarly, business operations may be affected by severe damage to a building. In addition to obtaining businessinterruption insurance for any business operations of the strata corporation, the corporation should advise owners, tenantsand other occupants that the strata corporation's policy does not extend to their own business operations.

Building Contents

The size, nature and use of a building will dictate the type of contents that will require insurance coverage. The areasused by management, maintenance or janitorial staff will typically contain furniture, office equipment, records, tools andother equipment. As this property forms part of the common assets of the strata corporation, the strata corporation'sinsurance must provide coverage for all of the contents of the administration office, lobbies, maintenance workshops,storage rooms and janitor rooms. Frequently this particular coverage is overlooked or inadequate maintaining an

update inventory of the strata corporation's personal property (i.e. property that can be moved from the building) isessential in ensuring that this does not occur.

Third Party Liability

Apart from coverage for fire, third party liability insurance is the most important form of insurance that should beobtained. Property owners are often considered by the public to be responsible for the slightest personal injury sustainedin or about a building regardless of how it happened.

Both the property owner and the property manager can be very vulnerable to claims, such as claims arising from peopleslipping on ice, tripping over a curb, or falling down steps, and it is therefore essential that there be adequate third partyliability insurance in place. The owner and the property manager must be named in the liability policy because, in theevent that there is litigation, both the owner and the property manager will often be named in the suit. Therefore, asproperty manager, be absolutely sure that you are named as a named insured in the strata corporation's liability policy.



21/30

Chapter 19

19.20

When claims do arise for personal injury or property damage, they are usually based on the alleged negligence on thepart of the owner and/or the property manager. An example would be not removing ice from a sidewalk which allegedlycaused a person to fall and suffer injury. However, all of the elements of negligence have to be proven in order for theowner or the manager to be held liable.

Environmental Liability Insurance

Insurance for environmental liability can be difficult to obtain. There have been a number of successful major claimsand, as a result, insurance companies over the past twenty years have limited availability to a point that it is almostimpossible to qualify for coverage.

In most property insurance policies, environmental liability is specifically excluded. In a typical insurance policy, therewill be a clause in the policy which reads as follows:

"This policy does not apply:

(a) to any bodily injury, personal injury or property damage arising out of the actual or threateneddischarge, dispersal, release or escape of pollutants; and

(b) to any loss, cost or expense arising out of any governmental request to test for, monitor, clean-up,remove, contain, treat, detoxify or neutralize pollutants".

There are some limited forms of coverage available which relate to specific types of environmental incidents, four ofwhich are generally recognized:

1. sudden, accidental, immediately identifiable impact;2. sudden, accidental, impact not immediately identifiable;3. gradual impact identifiable in near future; and4. gradual impact not identifiable in near future.

Insurance coverage is generally available for Type 1. There is some limited coverage available for Types 2 and 3, andvirtually no coverage is available for Type 4.

The foregoing may be interpreted to mean that insurance companies are willing to insure for the risk of an "accident"which presents an immediately identifiable environmental impact such as an oil spill on the ocean, discharge of toxicfumes from a chemical plant or from a fire which involved PCBs. On the other hand, insurers are typically unwillingto cover such things as asbestos insulation, chemical hazards or noise pollution from industrial processes.

Although it may appear that environmental liability refers only to major accidents which are not likely to happen in aresidential or commercial building, there are minor accidents which can quite easily happen in or near a building to createan environmental problem with serious implications. Your building may well be faced with the environmental impactof any of the following:

C asbestos insulation;C formaldehyde insulation;C underground fuel tanks which have rusted and ruptured;C old transformers containing PCBs which may either leak out or cause toxic fumes in the event of fire;C all or part of the building site may be covering a sanitary landfill site containing unknown pollutants and

possibly methane gas; andC disposal of solvents, cleaners, bleaches, etc. in the drains.

Thoroughly check your building, using consultants as necessary, and if you discover any potential environmentalproblem, discuss it with your insurance broker to assist the strata corporation in obtaining the best coverage it can forenvironmental liability.



22/30


19.21

Other Insurance Coverage Errors and Omissions Insurance

As mentioned earlier in the chapter, s. 151 of the Act permits a strata corporation to obtain errors and omissionsinsurance, commonly known as "directors and officers' liability insurance" or "D&O insurance", to protect the stratacorporation and its council members from liability and expenses resulting from mistakes or oversights made by councilmembers in the discharge of their duties as council members of the strata corporation.

There are typically two types of coverage under a D&O insurance policy, namely coverage that:

1. insures council members when the strata corporation refuses to or cannot indemnify members; and2. reimburses the strata corporation for indemnifying its council members.

Who is Insured

Most insurers will require a strata corporation to add council members as named insured under the policy. Therefore,if the strata corporation declines to make a claim under the policy, the individual council members are entitled to makea claim directly to the insurance company.

It is not uncommon for the council to delegate some of its duties and responsibilities to an agent. Where this hasoccurred, the agent should also be added as a "named insured" under the policy.

What is Insured

Most D&O policies will cover losses arising from the "wrongful acts" of a council member or other insured person."Loss" includes damages as determined by a court, settlements and defense expenses. A "wrongful act" is typicallydefined as "an actual or alleged breach of duty, breach of trust, neglect, error, misstatement, misleading statement,omission, breach of warrant of authority, or other act done or wrongfully effected by an insured". The policy will notcover injury caused intentionally by the council member; however, the policy generally covers negligent acts or honestmistakes made while in the conduct of the council member's duties.

Common exclusions on D&O policies include:

C Claims for the reimbursement of money that the insured is not legally entitled to;C Claims arising from a failure to place any or adequate insurance coverage;C Claims for property damage or bodily injury (as these claims are supposed to be covered under the strata

corporation's other policies);C Environmental and mould claims and claims related to building deficiencies;C Claims brought by the strata corporation against the council members;C Claims for liabilities that arise by contract;C Claims for wrongful dismissal by an employee; andC Claims related to noise or interference with quiet enjoyment.

As mentioned before, a strata corporation may be able to negotiate with the insurer to remove some exclusions throughan extension or endorsement to the policy.

Annual Insurance Review

Under s. 154 of the Act, the strata corporation must perform an annual review of its insurance policy. It is not sufficientfor the strata corporation to simply renew the existing coverage. To satisfy the obligation under s. 154, the council mustactively consider the existing policy and assess whether the existing coverage is adequate for the strata corporation.



23/30

Chapter 19

19.22

Figure 19.12

Factors to Consider in Annual Review

C Date of last insurance appraisalC New obligations to insure employees, property managers or independent contractorsC Recent claims made by the strata corporation adequacy of insurance coverageC Changes made to the BylawsC New forms of insurance coverage availableC New property acquired by the strata corporation as well as upgrades or repairs undertaken to the common

property

The strata corporation is also required to report to the owners on the insurance coverage at each annual general meeting(under s. 154(b) of the Act).

Reviewing Insurance Policies

An insurance policy is often difficult to read and understand because of the use of legal and technical jargon, as well asthe many cross references to exceptions and exclusions. If you are sent an insurance policy for comment, it isrecommended that the following steps should be followed:

1. read the policy from beginning to end;2. check to ensure that the policy includes the coverage required;3. ensure that the replacement values have been clearly recorded;4. make sure that the policy covers replacement value and not depreciated value;5. thoroughly consider the implications of the exceptions and exclusions;6. check the deductible amounts for each form of coverage; and7. check for a subrogation clause.

Keeping in mind that strata managers are not insurance experts, make notes as you go through the policy and then meetwith the insurance broker and obtain clarification on any points that you do not fully understand. In addition, youshould confirm with the strata council that you are not an insurance expert and that your ability to fully comment on thepolicy wording is therefore somewhat limited.

As a strata manager, you have a responsibility to assist the strata council in assessing the appropriate insurance coveragefor the strata corporation. At a minimum, you should recommend, in writing to the strata corporation, the types ofinsurance coverage that, in your opinion, are essential or required by the Act. In addition, if you are aware of optionalcoverage that the strata corporation should consider, those recommendations should also be made in writing. In the eventthat the strata corporation decides not to obtain coverage for any type of insurance that you have recommended, youshould request that they confirm such instructions in writing.

Retaining Insurance Policies

A strata corporation's insurance policy is deemed to be a "record" of the strata corporation under the Act. As a result,it must be retained as part of the records. The Strata Property Regulation s. 4.1 provides that copies of insurance policiesmust be retained for at least 6 years from the date of their expiry. However, because the ultimate limitation period inBritish Columbia is 30 years, insurance policies should be retained as long as possible as it may not able be possible tolocate the applicable policy through the broker or insurer.



24/30


19.23

As the insurance policy document is a record of the strata corporation, an owner is entitled to request access to the policyto review it or to request a copy. In addition, as tenants and occupants are also named insureds by virtue of the Act, theywould also be entitled to make a request for access to or a copy of the policy.

Recording Accidents

Whenever an accident occurs involving personal injury or property damage, a standard procedure should be followedby any strata manager, council member or building staff member.

1. In the event of serious injury, an ambulance should be called.2. Details of what occurred should be obtained from the victim(s) and any witnesses.3. Any assistance that is necessary should be provided.4. All details should be recorded on a standard report form.

All council members and building staff should be familiar with this procedure. It must also be clearly understood thatunder no circumstances should the property manager, or any other member of the council or the staff, volunteer anopinion or make any statement regarding the circumstances, since it may be taken as an admission of responsibility.

The general policy should be that all enquiries and claims should be directed to the insurance company or insuranceadjuster.

The insurance company should be advised of any accident by sending a copy of the standard report form, or in themanner specified in the insurance policy.

Personal Injury and Property Damage Report

The strata manager should develop a report form for recording all pertinent information regarding any accident orincident which caused personal injury and/or property damage. It should include the following information:

C name of the building or project;C

location;C date and time of the accident;C weather conditions at the time of the accident;C name(s) and address(es) of injured person(s);C nature and extent of injury;C description of property damaged and owner's name and address;C damage estimate;C nature and extent of damage;C names and addresses of witnesses;C description of what happened;C sketch or photograph of accident scene;C signature of person reporting the accident;C

date and time.

Copies of the report should be immediately sent to the insurance broker or insurance company, which will then appointan insurance adjuster to investigate any claims. A sample of a Personal Injury and Damage Report form is attached atthe end of the chapter in Appendix 19.1.



25/30

Chapter 19

19.24

Property Damage Report

From time to time, damage to some part of the building will occur, giving rise to an insurance claim. A standard reportform should be developed for use by all staff members and should include the following information:

C name of the property;C location;C type of damage: fire, flood/leakage, explosion, boiler/machinery, burglary, vandalism, third party, other;C date and time of the incident;C description of what occurred;C description of extent of damage;C estimated cost to repair or replace;C signature of person making the report;C name and phone number of the adjuster; andC name(s) of contractor(s) with phone number(s).

If a claim is to be made against the insurance, a copy of the report should be submitted to the insurance company withthe claim. A sample of a Property Damage Report form is included in Appendix 19.2. A copy should also be kept inthe strata corporation's records and may be used to instruct a contractor if the strata corporation ultimately has to hire

its own contractor because the claim is not covered by the strata corporation's insurance policy.

Ex Gratia Payments

There may be occasions when claims arise for minor property damage in amounts which are less than the deductible inthe insurance policy, and so no claim can be made against the strata corporation's insurance policy. In thesecircumstances, the strata corporation will have to decide if there is any liability for the damage or if for the sake of goodpublic relations, some settlement should be made.

If the strata corporation decides to make a settlement, the following procedure should be followed:

1. ask the claimant to obtain three estimates for the necessary repairs;

2. approve one of the estimates and instruct the claimant to have the work done and return with a receiptedinvoice;

3. get the claimant to sign a Final Release form. An example of a Final Release form is included in Appendix19.3;

4. issue a cheque to the claimant for the amount of the invoice.

The importance of the Final Release form is that it acknowledges that there is no liability on the part of the owner, stratamanager, or the employees, and that no further claim will be made. However, it is important to remember that thesigning of the Final Release form by the claimant may not necessarily absolve the strata corporation or the strata managerfrom liability if there is a subsequent legal suit and negligence is proved.

Making a Claim on a Policy

A strata corporation should report any possible claims arising on their insurance policy in a timely fashion or risk theconsequence that the claim may be denied by the insurer, particularly if the insurer has been prejudiced as a result of thedelay in reporting. If a property damage claim arises, the strata corporation should not take any steps to deal with thedamage aside from those measures necessary to stop further damage from occurring. If a liability claim arises, the stratacorporation should not make any admissions of responsibility before consulting with the insurer. Acknowledging faultor agreeing to pay the injured party compensation without the insurer's approval may result in a denial of a claim by theinsurer.



26/30


19.25

Reimbursement of Insurance Deductibles by Owners

Where a strata corporation has paid out an insurance deductible under its policy, it may have the right to make a claimagainst someone else, such as an owner, for reimbursement of that deductible. Section 158(2) of the Act specificallyallows a strata corporation to sue an owner to recover the deductible portion of an insurance claim if the owner is"responsible" for the loss or damage that gave rise to the claim.

In the 2000 decision of Strata Plan VR 2673 v. Comissiona, a case involving a faulty toilet that leaked, the BC Courtdetermined that the Act did not create a right to make a claim against an owner and that whether a strata corporation hadthe right to bring a claim against an owner for an insurance deductible had to be determined by all of the provisions ofthe relevant statute, as well as the bylaws and rules of the strata corporation. As the case only considered whether thestrata corporation could legally bring the claim, the issue of whether the Commissionas were in fact "responsible" forthe deductible was not addressed.

In 2006, the BC Provincial Court (Small Claims Court) considered two cases in which strata corporations sued ownersto collect amounts paid out by a strata corporation as a result of water damage within a strata lot:Strata Plan LMS 2835v. Mariand Strata Plan KAS 1019 v. Kieran.

In theKierandecision, a bathroom pipe burst causing damage to the owner's strata lot. The failure was due to the highacid levels in the water and there was no evidence of negligence on the part of the strata lot's owners. The cost ofrepairing the damage, which the strata corporation initially paid, was well under the amount of the deductible for waterdamage claims in the strata corporation's insurance policy. There was no damage to the common property or to anyother strata lots. It was conceded at the hearing that the pipe in question formed part of the strata lot and was not partof the common property.

In ruling in favour of the strata corporation's claim against the strata lot owner, the Court held that:

because the damage occurred within the unit and not to the common property, this is a situation where the

homeowner has the duty to repair and maintain and is therefore "responsible for loss", regardless of the absence

of fault or negligence on their part. In this sense, the matter may be viewed as if there were no strata

corporation involved. Whether the repairs were paid as part of the deductible under the policy or otherwise,

they relate to damage for which in my view, under the Act and bylaws, the owner is responsible.

In making its ruling, the Court specifically left aside the question of whether an owner can be held responsible fordamage to common property or other areas subject to the strata corporation's duty to repair and maintain that is notcaused by the owner's negligence as this issue was not raised on the facts of the Kierancase.

Several months after theKierandecision was released, the BC Provincial Court released its decision in the Marimatter.In theMaricase, the water-level switch in the strata lot owner's washing machine was faulty, causing the machine tooverfill. The cost to repair the arising damage exceeded the strata corporation's insurance deductible. The stratacorporation's insurer paid the insured amount and the strata corporation, in turn, sought to claim the deductible amountback from the owner.

The central issue in the case was whether the owner was "responsible" in law for the damage arising from the washingmachine overfill. There was no evidence to indicate that the owner was aware of the problem with the washing machine.However, the strata corporation argued that the word "responsible" has a broader meaning and did not require a findingof negligence on the part of the owner. The Court agreed by referring to two different sources: first, a law dictionary,which provided that "responsible" means "liable; legally accountable or answerable" and second, another court decisionwhich had interpreted "responsible" to mean "the person who brought about the operation in the sense of causing theoperation to be carried on or carried out but for the actions of that person, the operation would not have been carriedon or carried out being the primary cause".



27/30

Chapter 19

19.26

In theMaricase, the Court found that, had the owner not allowed a guest to stay in their strata lot and to use the washer,the leakage would not have occurred. In addition, the Court noted that the damage was less extensive than it could havebeen because a neighbour alerted the guest to the problem. These factors were sufficient to conclude that the owner was"responsible" for the deductible. The Court likened the situation to one in which a driver hits another car because ofa sudden failure of the steering mechanism. Even though the driver may not have been aware of the steering problemand therefore could not be charged with a driving offence, that driver would be legally responsible for the cost ofrepairing the other car.

Both theMariandKierancases were appealed by the owners to the BC Supreme Court and the appeals were dismissed.Although these cases have provided some insight as to what "responsible" means, a strata corporation is still advised toadopt an indemnity bylaw to ensure owners are aware of the circumstances in which the owner can expect to be heldresponsible for the deductible. While s. 158(2) permits a strata corporation to sue an owner for a deductible, it is notclear that this section alone would permit a strata corporation to charge back the deductible amount to a strata lot owner'saccount without a court judgment in favour of the strata corporation. In addition, it is not clear from these courtdecisions that an owner would be held "responsible" for the actions of others, such as the owner's tenants, visitors orcontractors, in the absence of a bylaw imposing vicarious liability on an owner for the actions of others.

Conclusion

In this chapter, we reviewed the concept of insurance as it relates to a strata corporation. Knowing the types of coveragethat are mandatory under the Act and the other types of coverage available to a strata corporation under an insurancepolicy will greatly assist a strata corporation in deciding on the type of plan that is the most appropriate for its purpose.In this chapter, we have also reviewed the interrelationship between risk management and insurance. It is important toremember that, as a property manager, you owe a duty of care to anyone who resides or works in a condominiumbuilding, as well as to members of the public who visit. The duty of care requires that you use your best efforts to ensurethat people in and around the building are not subject to any hazards or harm. Prevention of damage and injury is thebasis for your risk management program, which, if properly implemented, will be reflected in the insurance company'sassessment of their loss exposure or risk factor. The end result should be a favourable rating with reasonable premiumsand low deductibles.



28/30


19.27

APPENDIX 19.1

Personal Injury and

Property Damage Report

Please Print or Type

CLAIM #_______________

PROJECT Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .LOCATION Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OCCURRENCE Date and Hour of Accident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Specific Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INJURED Name and Address in Full . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

strata management chapter19

Documents