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INSURANCE AND RISK MANAGEMENT

Learning Objectives
After studying this chapter a student should be able to:
#
#
#

identify the different types of insurance coverage

available to a strata corporation;
identify the insurance coverages that are
mandatory under the Strata Property Act;
understand the difference between property
insurance, 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.

Introduction
Everyday living is constantly subject to risk in one form or another, such as the risks of getting wet, falling, being
robbed, being in an auto accident or having a heart attack. Insurance is available in many forms to provide compensation
for loss or damage or injury. For this, a premium is paid, and the greater the potential risk, the higher the premium will
be.
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 strata
corporation (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 further
in the chapter):
150(1) The strata corporation must obtain and maintain liability insurance to insure the strata corporation against
liability for property damage and bodily injury.

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In addition to these mandatory coverages, the Act also makes it clear that the strata corporation is free to obtain liability
coverage for errors and omissions made by council members (s. 151), and that the strata corporation may obtain optional
insurance in respect of other possible liabilities (s. 152). A section of the strata corporation created pursuant to Part 11
of the Act may also obtain insurance to supplement, but not replace, the insurance coverage taken out by the strata
corporation.
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 strata
council and owners on the coverages that must and should be obtained. There is no standard form of policy wording for
strata corporation insurance coverage; therefore, a strata corporation should review the actual policy wording to
determine the type of coverage the strata corporation has under the policy. It is strongly recommended that such a review
be undertaken with the strata corporation's insurance broker, who should be knowledgeable about strata insurance and
able 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 subject
matter 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 kinds
of losses. For example, if the house you own is damaged by fire, diminishing the value of the house until the required
repairs 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 have
an 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 the
general principles of insurance law, a strata corporation would not be able to obtain an insurance policy for the strata
building and common property. Only a strata lot owner would have an insurable interest in the building and their
ownership is only to the extent of their strata lot and their proportional unit entitlement in the common property. Leaving
owners 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 common
property, common assets, buildings shown on the strata plan and original fixtures built or installed on a strata lot. This
enables the strata corporation to place insurance on the condominium buildings and also to make claims under the policy
on 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 and
vandalism. 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, including
the strata lots as they were originally constructed by the owner developer. However, it should be noted that a strata
corporation 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 ownerdeveloper as part of the original construction of the building. The term "fixtures" is defined under Strata Property
Regulation 9.1(1) as "items attached to a building, including floor and wall coverings and electrical and plumbing
fixtures, but does not include, if they can be removed without damage to the building, refrigerators, washers, dryers or

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other items". This obligation on the part of the Strata Corporation to insure original fixtures applies even if only one
strata 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 installed
on a strata lot that are not the original fixtures built or installed by the owner developer. If original fixtures have been
consistently replaced throughout the building (for example, where a defective toilet was replaced in every strata lot), the
strata 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 certain
property, 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 replacement
value" 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 current
value 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 corporation
should seek the advice of a qualified insurance appraiser. Neither the broker nor the strata manager have the
qualifications to assess full replacement value. The frequency of obtaining a written appraisal will largely depend on cost
increases in the construction market. As a result, the strata corporation and the property manager should consider as
part of the annual review of insurance (discussed further in this chapter) whether an updated insurance appraisal is
required. Failure to obtain an updated appraisal can result in the property being underinsured, possibly triggering any
coinsurance 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 strata
corporation is required to obtain the insurance coverage against certain major perils as set out in the Strata Property
Regulation.
Figure 19.1
List of Mandatory "Major Perils"
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Fire
Lightning
Smoke
Windstorm
Hail
Explosion

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Water escape
Strikes
Riots or Civil Commotion
Impact by Aircraft and Vehicles
Vandalism and Malicious Mischief

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

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As property damage insurance policies can come in different forms, it is recommended that a strata corporation seek
advice 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, a
basic 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 to
insure.
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 the
policy wording, limiting the coverage by the type of property damaged and the perils insured.

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.
Figure 19.3
Examples of "Property Excluded" Exclusions
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Internationally caused damage;

Land, improvements to land, water, plants and animals;
Sewers, drains, water mains and other similar utilities located beyond the boundaries of the building;
Motor vehicles, aircraft and watercraft;
Money, securities, letters of credit, stamps, passports and other documents that have a negotiable value;
Property that has been illegally acquired;
Personal property of strata lot owners and tenants;
Improvements and betterments made by strata lot owners and tenants;
Art, antique and jewellery;
Computer data and records;
Electrical devices and boilers; and
Faulty workmanship or construction.

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

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Figure 19.4
Examples of "Excluded Perils" Exclusions
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War, invasion, rebellion, terrorism and other similar events;

Earthquake;
Flood;
Water seepage through basement walls, windows, doors and foundations;
Dampness or dryness of atmosphere, wet or dry rot, changes in temperature, freezing, heating shrinkage,
corrosion, scratching and other similar causes of damage;
Rodents, insects or vermin;
Dishonest acts of the insured, or employees or agents of the insured;
Wear and tear or gradual deterioration, inherent vice or defects;
Costs associated with making good faulty design, materials or workmanship;
Spills, discharges or seepage of a pollutant or contaminant;
Damage caused by cultivating, manufacturing, processing, storing or distribution of drugs, narcotics or other
illegal substances;
Fungi and mould;
Damage caused by explosion (as this is a mandatory peril); and
Damage caused during a construction project at the condominium complex.

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

Figure 19.5
Examples of Exceptions
As noted above, an exception is essentially "an exclusion to an exclusion", limiting the potentially negative effect
of an exclusion clause. The following are some typical examples of exceptions:
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Damage caused by freezing except the freezing of pipes;

Damage caused by setting, expansion, contraction, moving, shifting, or cracking unless concurrently caused
by a peril not otherwise excluded;
Loss of computer data except with respect to the cost of duplicating the lost data;
Damage caused by "grow ops" or "drug labs" to a maximum of $50,000; and
Loss of art, unless the art is owned by the strata corporation, located on the common property and used for
decorative purposes.

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

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Figure 19.6
Examples of Endorsements and Extensions
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Common expenses the insurer agrees to indemnify the strata corporation for the strata fees lost during the
period of time that a strata lot or lots are uninhabitable;
Arson reward indemnifying the strata corporation for any reward paid out to secure the conviction for
someone who has deliberately caused a fire at the strata corporation;
Blanket bylaws paying for the cost of demolishing those parts of the strata corporation which were
damaged by an insured peril (for example) and must be demolished as the result of a municipal bylaw or
other similar regulation;
Preparation of proof of loss the reasonable costs associated with preparing a proof of loss to be submitted
to the insurer;
Expediting expenses additional expenses incurred to expedite the completion of permanent repairs to the
lost or damaged property;
Extra expense additional expenses incurred to allow the strata corporation to resume normal operations
as soon as possible (for example, the cost of using other property or facilities, or extraordinary property
management expenses if approved by the strata corporation);
Fire department charges costs levied by a fire department to respond to save or protect the insured's
property; and
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 corporation
to reduce or remove the effect of an exclusion in the policy. An insurer may agree to remove an exclusion or to increase
the 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 must
contribute to the cost of repairing or replacing damaged property. Most policies provide for different levels of
deductibles 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 the
premiums payable for the insurance coverage. In Miluzzi v. York Condominium Corp. No. 60, the Ontario Court
suggested that, if an insurance deductible was excessive, it could be argued that a condominium corporation has failed
in 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 cause
of the losses and the policy wording, more than one deductible may apply. This was recently confirmed in the BC
Supreme 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 seeking
insurance coverage could only prove that 9 of the grow-ops were part of a coordinated scheme, thereby constituting a
single "occurrence", the Court found that 1 deductible applied collectively to the units affected by that scheme. The
remaining units were all each subject to a separate deductible as they were all treated as separate "occurrences". With
22 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 a
building is insured for less than its full replacement value. If a building is underinsured, whether through a deliberate
decision or the negligence of the building owners and the owner subsequently makes a claim against the property policy,

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the full amount of the loss will not be paid by the insurer. As shown in the example below, the co-insurance clause acts
to 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:

Insured value
Cost of Repairs = Insurer's contribution
Replacement value
$3 million
$1.75 million = $1.05 million
$5 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.

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

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 not
include every property damage loss that an owner, tenant or occupant may suffer. Consequently, section 161 of the Act
specifically permits an owner of a strata lot to obtain and maintain insurance for loss or damage to the owner's strata lot
and 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 that
is not covered under the strata corporation's insurance policy.

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Figure 19.8
Types of Owner's Insurance Coverage
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Owner's contents of a strata lot (i.e. furnishings, personal items, clothing, electronics, dishes, linens, etc.);
Alterations or upgrades to the original construction of the strata lot;
Living costs where the strata lot becomes uninhabitable;
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 cost
of the repair or replacement, resulting in the need for a special levy to make up the shortfall, the
strata lot owner's policy may provide that the strata lot insurer will pay the strata lot owner's share
of the special levy;
- If the strata corporation's insurance coverage excludes a peril, such as earthquake coverage, the
strata lot owner's policy may include coverage for damage caused by the excluded peril.
Loss of rental income for an owner, where the strata lot cannot be rented out; and
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.

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

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 property
insurance 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 to
the common property, the strata corporation may, as a condition of any approval, require that the owner obtain
insurance 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 a
requirement that an occupant or tenant of a strata lot obtain insurance coverage. Moreover, a strata corporation
cannot 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 insurance
coverage for their personal property.

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 damage
claim has been made on the strata corporation's insurance policy, the insurer will, with the express consent of the strata
corporation, pay the contractor directly for the cost of repairing or rebuilding damaged common property, common assets
or strata lots. Alternatively, the insurer may pay the insurance proceeds directly to the strata corporation.

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If the insurer pays out on the latter method, it is obligated by s. 156 of the Act to pay the insurance proceeds to an
insurance trustee designated by the strata corporation's bylaws. If the bylaws do not appoint an insurance trustee, the
insurer is required to pay the insurance proceeds directly to the strata corporation, which the strata corporation must then
hold until the strata corporation decides whether or not to repair or replace the damaged property. The strata corporation
is obligated to use the insurance monies to repair or replace the damaged property "without delay" unless the strata
corporation, by way of a vote of the owners at a general meeting, decides against repairing or replacing the damaged
property. 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, the
insured would only receive the equivalent of the "actual cash value" of the damaged property. As previously noted, the
difference between "full replacement value" and "actual cash value" may be quite significant depending on the age and
condition 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 the
money in trust on behalf of anyone who has an interest in the money, pending distribution of the funds. Persons who
may have an interest in the insurance proceeds include the holder of a registered charge (i.e. a lender who has loaned
money by way of mortgage to permit the strata lot owner to purchase his or her strata lot). There is a presumption that
the funds will be paid out in accordance with each person's interest in the money. The Act does not indicate how to
calculate each person's interest and there have been no court cases to date interpreting the applicable provisions of the
Act. 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 reconstruct
the strata lot. Alternatively, an application may be made to the BC Supreme Court by an owner, a registered charge
holder, an insurer or any other person the Court considers appropriate, to ask the Court to decide on the distribution of
funds. It should be noted that the concept of "deemed destruction", which existed under the Condominium Act, no longer
exists 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 taken
out to insure the strata corporation against the risk of claims being made by a third party for property damage or bodily
injury 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 to
tangible property of others, including all resulting loss of use of that property, or loss of use of tangible property that
is not physically damaged", whereas bodily injury is typically defined as "any physical harm, including sickness or
disease to the physical health of other persons".
Figure 19.9
Examples of Types of Claims Covered under a Liability Policy
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A mail delivery person slips and falls on newly mopped floors in the lobby of a strata corporation, injuring
herself. If the claim is approved by the insurer, the strata corporation's liability policy will pay any damages
that are payable to the injured individual, as well as the strata corporation's legal costs in defending the
claim.

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 that
are payable to the owner of the building next door, as well as the strata corporation's legal expenses, if any,
to defend the claim.

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The Strata Property Regulation prescribes that the minimum amount of liability coverage that a strata corporation must
obtain is $2 million. However, as a catastrophic bodily injury claim can result in damages in excess of $2 million, all
strata corporations should consider obtaining more than $2 million coverage, particularly if the strata complex has
amenities such as a gym or swimming pool. The owners are responsible for any shortfalls resulting from insufficient
liability 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 who
normally 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 be
possible to negotiate with the insurer to limit the broad effect of exclusions through exceptions, endorsements or
extensions to the liability policy.
Figure 19.10
Examples of Common Exclusions
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Pollution, mould or asbestos related claims;

Claims arising from liabilities assumed by contract;
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);
Claims for bodily injury suffered by employees;
Claims for bodily injury or property damage caused by an aircraft or motor vehicle;
Damage to property owned by or entrusted to an insured;
Claims related to professional liability or malpractice;
Claims related to Worker's Compensation, Employment Insurance or other employment related matters.

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 their
own strata lot or for liability claims that may arise against an owner with respect to their conduct off the condominium
premises. In addition, the owner may obtain supplemental liability insurance to cover claims occurring on common
property 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 for
obtaining their own liability insurance for the consequences of their own actions within the strata lot and off the
condominium premises.
A strata corporation should take steps to ensure that contractors and employees are covered for both liabilities caused
by the contractor or employee, as well as claims for bodily injury to the contractor or employee. Typically, a strata
corporation'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 coverage
to cover any injuries to the contractor or its workers, as well as liability coverage for injuries or damages caused by the
contractor. Likewise, a strata corporation should itself obtain coverage through WorkSafe BC for any injuries to an
employee of the strata corporation arising during the course of that employee's duties.

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It is strongly recommended that a strata corporation cautiously negotiate all contracts and not assume any liabilities caused
or suffered by the subject contractor, as there is typically an exclusion clause in most insurance policies for liabilities
assumed by contract. If a contract requires that the strata corporation insure the contractor, the strata corporation will
need 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 be
taken to eliminate or at least reduce them. This process is called "risk management". It is not something you do once
and forget about; risk management is a continuing process, and should be viewed as complementary to any insurance
coverage.
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 insurance
claims and the reasons for them. In addition, when assessing its potential risk, the insurer will look at the nature of the
business or businesses in the building, the standard of general housekeeping, as well as the degree of fire protection in
the building and the management's attitude towards fire prevention. There is therefore an onus on the strata manager
to work with the strata corporation to minimize the number of claims made against the insurance if at all possible. This
can be achieved by developing a positive risk management program, which will entail identifying all potential hazards
and 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 into
three 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)
(b)
(c)
(d)
(e)
(f)

to owners, tenants and occupants;

to clients, customers or other visitors to the building;
to building staff;
to the staff of the owners, tenants and occupants;
to contractors and their employees; or
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. Developing
a program necessitates a complete inspection of the building, parking facilities and surrounding areas for the identification
of 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

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remedial action has been taken to eliminate the risks identified, regular inspections should be made to ensure that
changing 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 as
overheated equipment or an electrical short circuit, or by human carelessness, such as not extinguishing a cigarette butt
or inappropriate handling of a flammable liquid.
Both fire protection and fire prevention measures are needed to reduce the possibility of fire. Fire protection and
prevention 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 the
possibility 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 (which
identify the location of a fire when an alarm is triggered), sprinkler systems, hydrants, hose stands and
hoses, 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 and
fire 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 to
extinguish the fire, is indeed "an ounce of prevention", and represents a reduction in the risk.

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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 premiums
are generally reduced for a sprinklered building. These two factors should be drawn to a building
owner's attention along with the recommendation that a sprinkler system be installed in any building
that does not already have one. In some jurisdictions, it is mandatory to install sprinklers in residential
and commercial buildings.
(b) Smoke detectors and heat detectors give early warning of fires and can save lives. Are there any in
your building? If not, persuade the owner to install some. If they have been installed, do they function
properly and are they tested regularly?
(c) Are there hose stands and hoses in the building? In what condition are the hoses? Are they checked
regularly?
(d) Hand-held fire extinguishers are effective on small fires. Are there any in your building? Are they
fully charged?
(e) Does the fire alarm system in your building work? Is it regularly tested? It is essential that all
occupants 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 and
easy 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 must
be 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 to
ensure that the "power on" lamp is lit.
2. Monthly Inspect all fire doors, emergency lighting, hand-held fire extinguishers and hose cabinets and test
the 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 item
reporting some environmental disaster, usually on the scale of an explosion causing a discharge of toxic fumes or a
derailed tank car containing toxic chemicals. What one does not hear about are the daily minor incidents involving
hazardous or toxic products that are similarly potentially harmful to human beings.

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Government, at all levels, has developed both statutory and regulatory standards to reduce the exposure of the populace
and the environment to hazardous and toxic substances. The federal government and the provincial governments have
introduced environmental protection legislation. Cities and municipalities have established by-laws dealing with the
disposal 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 relate
to 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 known
that the ballasts in fluorescent light fixtures contain a small amount of PCBs 1, disposal of old ballasts has to be given
special attention by the strata manager.
Some of the most common hazardous materials which might be encountered are:
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asbestos limpet spray or pipe insulation;

PCBs, including capacitors, ballasts and transformers, whether in use or stored;
pesticides and herbicides;
cleaning products used by the janitorial staff;
gasoline and oil storage tanks, above or below the ground;
urea formaldehyde foam insulation;
air emissions; and
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 these
products 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 or
discharge of toxic fumes. All building staff must be familiar with these instructions and procedures and should be tested
from time to time to ensure that they know what to do in an emergency. This is all part of safety and security planning
but 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 hazardous
materials. Members of the building staff may suffer injury or possibly long term health problems from mishandling such
materials. In addition, persons who occupy a building and members of the public might also be injured and must be
considered in a building's operating plan. If an accident were to occur and it was found that there were no established
instructions or procedures, this could be viewed as negligence on the part of management.

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

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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 some
form or another. This is therefore an area in which insurance claims are quite frequent, and as a result, premiums and
deductibles are high. Vandalism is not always easy to eliminate but some effort can be made to limit the incidence and
impact of any such incidents.
The most vulnerable areas of a building are typically washrooms and elevator cabs, and to some extent the more remote
parts of common areas. Damage frequently encountered includes the breaking or abuse of washroom fixtures, and
graffiti on walls, partitions and in elevator cabs. The first step that can be taken to limit vandalism is to arrange regular
security checks by maintenance, janitorial or security staff. Next, as far as possible, install vandal proof fixtures and
fittings 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 difficult
finishes to scratch.

Pressure Vessels
Every building contains a number of pressure vessels, such as boilers, hot water tanks and compressors. Pressure vessels
must be maintained and monitored to prevent the danger of explosion. The explosion of a pressure vessel might have
a number of consequences:
1.
2.
3.
4.

the explosion may cause property damage, damage to other equipment or perhaps injury to persons;
if a boiler explodes, it may also shut down the heating system;
if a compressor explodes, it may shut down the heating system or put the sprinkler system out of operation;
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 must
be 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 plan
of the building, as well as the location of any shut off valves connected to the particular unit. Additionally, regular
checks 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 may
not 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 requires
frequent inspections of areas of a building which are accessible to building occupants or to members of the public who
visit the building.
Potential hazards include the following:
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ice and snow on sidewalks and parking lots;

wet floor surfaces;
highly polished floors;
poorly defined steps;

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no handrails by steps and ramps;

slippery ramps or inclines;
badly placed low planters;
unpainted curbs and parking lot dividers;
sunken planter or seating areas;
seating that may tip over;
low branches on shrubs and trees;
torn carpeting; and
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 lookout
for potential hazards. Upon identifying any hazard or defect, immediate action should be taken to eliminate it before it
can 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 directed
at preventing fires, vandalism, insider crime, property damage, personal injury and financial loss is, therefore, one of
the 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 specific
areas of coverage. In addition to setting a high standard of management that contributes to a low loss exposure, a strata
manager must also consider (ideally in conjunction with the insurance broker) the various types of insurance coverage
that 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 that
should be considered for all buildings. These are listed in the box below. The coverage for any particular building will
depend on a number of factors including construction, age, location and use.
Figure 19.11
Insurance Coverage to Consider
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Extended coverage
Earthquake
Flood
Plate glass
Pressure vessels
Machinery and equipment

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Sewer backup
Sprinkler leakage
Loss of income
Building contents
Third party liability
Environmental liability

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

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Having established the coverage required, the broker should be asked to shop around to obtain the best quotation on the
premium, as there is considerable variation between insurance companies. It is important that the strata manager be
advised on exclusions, exceptions and deductibles, because a premium may be attractively low simply because of
significant restrictions on coverage within the policy.
A strata manager must be extremely careful regarding making any recommendations to the owners on insurance
coverage. 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 the
specific 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. This
becomes 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 [Link] is considerable variation in fire
insurance 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 fire
department 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. As
already 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 insurance
peril 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 typically
addressed as an operating expense of the strata corporation. Nevertheless, insurance coverage for vandalism must be
obtained 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 left
vacant. 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 other
property caused by the fraudulent or dishonest act of a strata corporation employee. Checks and balances should be put
in place to ensure that employees are being monitored to prevent such crimes from taking place. In addition, any strata
corporations 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 obtain
earthquake 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, flooding
of any nature, tidal wave, high water or waterborne objects, whether or not caused by or attributable to the earthquake.

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There will need to be a correlation between earthquake and fire coverage. If a gas line ruptures because of an
earthquake, the resulting repairs are covered under earthquake insurance. If, as a result of gas escape, the building
catches 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 than
that, and will typically include boilers for the heating system, compressors for the heating system and for maintaining
pressure 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 insurance
for the risk posed by the explosion of a pressure vessel. In addition, boiler and machinery insurance should cover repair
or 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 and
accidental failure with accompanying property damage. Coverage against bodily injury would usually be covered by the
third party liability insurance.

Machinery and Equipment

Many buildings (and high-rises in particular) utilize expensive and sophisticated machinery and equipment to provide
heating 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 to
time and extensive repairs will be required to rectify the damage. Worse still, the replacement of a major unit may be
required. A repair bill running into thousands of dollars will likely cause a serious overrun on the operating budget and
adversely affect the cash flow for the building. For example, one of the big electric motors used in an air conditioning
system can cost $10,000 or more to replace.
Insurance against these major mishaps is available and obtaining coverage therefore merits serious consideration. Despite
the obvious value of such insurance should a claim arise, the building owner's decision may be that the risk of anything
serious 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. Leakage
can 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:
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broken water lines;

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

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skylights;
internal fire hose connections; or
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 any
number of floors below. Unless the flow can be stopped quickly, the resulting damage can be extensive, including ruined
paintwork 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 escape
is 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 sprinkler
head is accidentally damaged or triggered by a fire alarm or by a fire, the volume of water released is typically
considerable and flows until the system can be shut off. The type of damage that can occur is the same as outlined under
water damage, but potentially on a much greater scale. There can also be leakage from joints in the system or from burst
pipes 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 persons
occupying the building may be required to leave their premises until the repairs are completed. If the strata corporation
is leasing any premises, the corporation should ensure that its insurance includes coverage for any loss of income arising
because a tenant has to vacate the property. In addition, owners should be advised that, if they suffer a financial loss
because 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 business
interruption insurance for any business operations of the strata corporation, the corporation should advise owners, tenants
and 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 areas
used by management, maintenance or janitorial staff will typically contain furniture, office equipment, records, tools and
other equipment. As this property forms part of the common assets of the strata corporation, the strata corporation's
insurance 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) is
essential 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 be
obtained. Property owners are often considered by the public to be responsible for the slightest personal injury sustained
in 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 people
slipping on ice, tripping over a curb, or falling down steps, and it is therefore essential that there be adequate third party
liability insurance in place. The owner and the property manager must be named in the liability policy because, in the
event that there is litigation, both the owner and the property manager will often be named in the suit. Therefore, as
property manager, be absolutely sure that you are named as a named insured in the strata corporation's liability policy.

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When claims do arise for personal injury or property damage, they are usually based on the alleged negligence on the
part of the owner and/or the property manager. An example would be not removing ice from a sidewalk which allegedly
caused a person to fall and suffer injury. However, all of the elements of negligence have to be proven in order for the
owner 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 claims
and, as a result, insurance companies over the past twenty years have limited availability to a point that it is almost
impossible to qualify for coverage.
In most property insurance policies, environmental liability is specifically excluded. In a typical insurance policy, there
will 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 threatened
discharge, 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 of
which are generally recognized:
1.
2.
3.
4.

sudden, accidental, immediately identifiable impact;

sudden, accidental, impact not immediately identifiable;
gradual impact identifiable in near future; and
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, and
virtually 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 toxic
fumes from a chemical plant or from a fire which involved PCBs. On the other hand, insurers are typically unwilling
to 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 a
residential or commercial building, there are minor accidents which can quite easily happen in or near a building to create
an environmental problem with serious implications. Your building may well be faced with the environmental impact
of any of the following:
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asbestos insulation;
formaldehyde insulation;
underground fuel tanks which have rusted and ruptured;
old transformers containing PCBs which may either leak out or cause toxic fumes in the event of fire;
all or part of the building site may be covering a sanitary landfill site containing unknown pollutants and
possibly methane gas; and
disposal of solvents, cleaners, bleaches, etc. in the drains.

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

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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 omissions
insurance, commonly known as "directors and officers' liability insurance" or "D&O insurance", to protect the strata
corporation and its council members from liability and expenses resulting from mistakes or oversights made by council
members 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; and
2. 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 make
a 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 has
occurred, 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 typically
defined 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 not
cover injury caused intentionally by the council member; however, the policy generally covers negligent acts or honest
mistakes made while in the conduct of the council member's duties.
Common exclusions on D&O policies include:
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Claims for the reimbursement of money that the insured is not legally entitled to;
Claims arising from a failure to place any or adequate insurance coverage;
Claims for property damage or bodily injury (as these claims are supposed to be covered under the strata
corporation's other policies);
Environmental and mould claims and claims related to building deficiencies;
Claims brought by the strata corporation against the council members;
Claims for liabilities that arise by contract;
Claims for wrongful dismissal by an employee; and
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 through
an 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 sufficient
for the strata corporation to simply renew the existing coverage. To satisfy the obligation under s. 154, the council must
actively consider the existing policy and assess whether the existing coverage is adequate for the strata corporation.

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Figure 19.12
Factors to Consider in Annual Review
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Date of last insurance appraisal

New obligations to insure employees, property managers or independent contractors
Recent claims made by the strata corporation adequacy of insurance coverage
Changes made to the Bylaws
New forms of insurance coverage available
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 as
the many cross references to exceptions and exclusions. If you are sent an insurance policy for comment, it is
recommended that the following steps should be followed:
1.
2.
3.
4.
5.
6.
7.

read the policy from beginning to end;

check to ensure that the policy includes the coverage required;
ensure that the replacement values have been clearly recorded;
make sure that the policy covers replacement value and not depreciated value;
thoroughly consider the implications of the exceptions and exclusions;
check the deductible amounts for each form of coverage; and
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 meet
with the insurance broker and obtain clarification on any points that you do not fully understand. In addition, you
should confirm with the strata council that you are not an insurance expert and that your ability to fully comment on the
policy wording is therefore somewhat limited.
As a strata manager, you have a responsibility to assist the strata council in assessing the appropriate insurance coverage
for the strata corporation. At a minimum, you should recommend, in writing to the strata corporation, the types of
insurance coverage that, in your opinion, are essential or required by the Act. In addition, if you are aware of optional
coverage that the strata corporation should consider, those recommendations should also be made in writing. In the event
that the strata corporation decides not to obtain coverage for any type of insurance that you have recommended, you
should 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 policies
must be retained for at least 6 years from the date of their expiry. However, because the ultimate limitation period in
British Columbia is 30 years, insurance policies should be retained as long as possible as it may not able be possible to
locate the applicable policy through the broker or insurer.

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As the insurance policy document is a record of the strata corporation, an owner is entitled to request access to the policy
to review it or to request a copy. In addition, as tenants and occupants are also named insureds by virtue of the Act, they
would 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 followed
by any strata manager, council member or building staff member.
1.
2.
3.
4.

In the event of serious injury, an ambulance should be called.

Details of what occurred should be obtained from the victim(s) and any witnesses.
Any assistance that is necessary should be provided.
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 that
under no circumstances should the property manager, or any other member of the council or the staff, volunteer an
opinion 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 insurance
adjuster.
The insurance company should be advised of any accident by sending a copy of the standard report form, or in the
manner 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 or
incident which caused personal injury and/or property damage. It should include the following information:
C
C
C
C
C
C
C
C
C
C
C
C
C
C

name of the building or project;

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

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

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Property Damage Report

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

name of the property;

location;
type of damage: fire, flood/leakage, explosion, boiler/machinery, burglary, vandalism, third party, other;
date and time of the incident;
description of what occurred;
description of extent of damage;
estimated cost to repair or replace;
signature of person making the report;
name and phone number of the adjuster; and
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 with
the claim. A sample of a Property Damage Report form is included in Appendix 19.2. A copy should also be kept in
the 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 in
the insurance policy, and so no claim can be made against the strata corporation's insurance policy. In these
circumstances, the strata corporation will have to decide if there is any liability for the damage or if for the sake of good
public 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 receipted
invoice;
3. get the claimant to sign a Final Release form. An example of a Final Release form is included in Appendix
19.3;
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, strata
manager, or the employees, and that no further claim will be made. However, it is important to remember that the
signing of the Final Release form by the claimant may not necessarily absolve the strata corporation or the strata manager
from 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 the
consequence that the claim may be denied by the insurer, particularly if the insurer has been prejudiced as a result of the
delay in reporting. If a property damage claim arises, the strata corporation should not take any steps to deal with the
damage aside from those measures necessary to stop further damage from occurring. If a liability claim arises, the strata
corporation should not make any admissions of responsibility before consulting with the insurer. Acknowledging fault
or agreeing to pay the injured party compensation without the insurer's approval may result in a denial of a claim by the
insurer.

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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 claim
against someone else, such as an owner, for reimbursement of that deductible. Section 158(2) of the Act specifically
allows 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 Court
determined that the Act did not create a right to make a claim against an owner and that whether a strata corporation had
the right to bring a claim against an owner for an insurance deductible had to be determined by all of the provisions of
the relevant statute, as well as the bylaws and rules of the strata corporation. As the case only considered whether the
strata corporation could legally bring the claim, the issue of whether the Commissionas were in fact "responsible" for
the deductible was not addressed.
In 2006, the BC Provincial Court (Small Claims Court) considered two cases in which strata corporations sued owners
to collect amounts paid out by a strata corporation as a result of water damage within a strata lot: Strata Plan LMS 2835
v. Mari and Strata Plan KAS 1019 v. Kieran.
In the Kieran decision, a bathroom pipe burst causing damage to the owner's strata lot. The failure was due to the high
acid levels in the water and there was no evidence of negligence on the part of the strata lot's owners. The cost of
repairing the damage, which the strata corporation initially paid, was well under the amount of the deductible for water
damage claims in the strata corporation's insurance policy. There was no damage to the common property or to any
other strata lots. It was conceded at the hearing that the pipe in question formed part of the strata lot and was not part
of 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 for
damage to common property or other areas subject to the strata corporation's duty to repair and maintain that is not
caused by the owner's negligence as this issue was not raised on the facts of the Kieran case.
Several months after the Kieran decision was released, the BC Provincial Court released its decision in the Mari matter.
In the Mari case, the water-level switch in the strata lot owner's washing machine was faulty, causing the machine to
overfill. The cost to repair the arising damage exceeded the strata corporation's insurance deductible. The strata
corporation's insurer paid the insured amount and the strata corporation, in turn, sought to claim the deductible amount
back from the owner.
The central issue in the case was whether the owner was "responsible" in law for the damage arising from the washing
machine 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 finding
of 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 decision
which had interpreted "responsible" to mean "the person who brought about the operation in the sense of causing the
operation to be carried on or carried out but for the actions of that person, the operation would not have been carried
on or carried out being the primary cause".

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In the Mari case, 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 have
been 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 of
a sudden failure of the steering mechanism. Even though the driver may not have been aware of the steering problem
and therefore could not be charged with a driving offence, that driver would be legally responsible for the cost of
repairing the other car.
Both the Mari and Kieran cases 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 to
adopt an indemnity bylaw to ensure owners are aware of the circumstances in which the owner can expect to be held
responsible for the deductible. While s. 158(2) permits a strata corporation to sue an owner for a deductible, it is not
clear that this section alone would permit a strata corporation to charge back the deductible amount to a strata lot owner's
account without a court judgment in favour of the strata corporation. In addition, it is not clear from these court
decisions that an owner would be held "responsible" for the actions of others, such as the owner's tenants, visitors or
contractors, 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 coverage
that are mandatory under the Act and the other types of coverage available to a strata corporation under an insurance
policy 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 to
remember that, as a property manager, you owe a duty of care to anyone who resides or works in a condominium
building, as well as to members of the public who visit. The duty of care requires that you use your best efforts to ensure
that people in and around the building are not subject to any hazards or harm. Prevention of damage and injury is the
basis for your risk management program, which, if properly implemented, will be reflected in the insurance company's
assessment of their loss exposure or risk factor. The end result should be a favourable rating with reasonable premiums
and low deductibles.

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APPENDIX 19.1
Personal Injury and
Property Damage Report
Please Print or Type
CLAIM #_______________
PROJECT
LOCATION

Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OCCURRENCE

Date and Hour of Accident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Specific Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INJURED
PERSON

Name and Address in Full . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.....................................................
.....................................................
Nature and Extent of Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................................................

PROPERTY
DAMAGE

Owner's Name and Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.....................................................
Phone Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Property Damaged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................................................
Damage Estimate:
Material
$ ..........................................
Labour
$ ..........................................
Nature and Extent of Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................................................
.....................................................

NAMES AND
ADDRESSES OF
WITNESSES

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

DESCRIPTION
OF
OCCURRENCE

Describe briefly how accident happened . . . . . . . . . . . . . . . . . . . . . . . . . .

.....................................................
.....................................................
.....................................................
In case of fatal accident, telephone or fax head office at once.

SIGNED

_________________________________________

DATE

_________________________________________

COPY

_________________________________________

Insurance Agent notified _____

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APPENDIX 19.2
Property Damage Report
CLAIM #_______________
Insurance Agent Notified ___
LOCATION

Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NATURE

___ Building/Equipment Damage

TYPE OF DAMAGE

___ Fire ___ Flood/Leakage ___ Explosion ___ Boiler/Machinery

___ Burglary/Theft ___ Vandalism ___ Accident Caused by Third Party
___ Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DESCRIPTION

(Describe briefly what happened) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

EXTENT OF
DAMAGE

(Describe property and extent of damage and estimated cost to repair/replace) .

.....................................................
.....................................................
.....................................................
.....................................................
(Attach a separate sheet if further detail required)

SIGNED

___________________________________

DATE

___________________________________

ADJUSTERS

Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONTRACTORS

Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COPY

___________________________________

___ Personal Injury

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APPENDIX 19.3
Final Release
In consideration of the payment of $
of all claims, I/We,

, receipt of which is hereby acknowledged as full settlement

hereby release and discharge forever,

and their employees or agents from any and all actions, causes of action, claims and demands whatsoever arising, for
property damage or personal injury which heretofore may have been or may hereafter be sustained by me/us as a result
of
which occurred on or about

IT IS UNDERSTOOD AND AGREED that the said payment is not deemed to be an admission of any liability
whatsoever on the part of
their employees or agents, who expressly disclaim any liability whatsoever and who make the above payment for the
purpose of effecting a full and final settlement of all claims.

DATED this

day of

SIGNED:

____________________________________________

IN THE PRESENCE OF:

____________________________________________
Witness

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