Dealing with Insurance Deductibles in a Strata Setting


Section 158 of the Strata Property Act states as follows:

158(1) Subject to the regulations, the payment of an insurance deductible in respect of a claim on the strata corporation’s insurance is a common expense to be contributed to by means of strata fees calculated in accordance with section 99(2) or 100(1).

(2) Subsection (1) does not limit the capacity of the strata corporation to sue an owner in order to recover the deductible portion if an insurance claim if the owner is responsible for the loss or damage that gave rise to the claim.

These sections and the concept of who is responsible for payment of insurance deductibles, and under what circumstances does that responsibility arise is probably one of the most misunderstood concepts within the strata setting. It must be understood that the obligations of the strata corporation with respect to insurance matters arise from the operation of the Strata Property Act, not necessarily insurance law.

For example, under insurance law an entity cannot insure that for which it does not have an insurable interest. Section 66 of the Act states that common property is owned by all the owners of strata lots, in a proportion based upon unit entitlement. By operation of insurance law, the strata corporation would not have an insurable interest in the common property. However, section 153 of the Act specifically provides that the strata corporation shall have an insurable interest in common property, common assets, buildings, and even 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. It is by this avenue that the Legislature has ensured that strata corporation insurance will be available for damage to common property, and in some circumstances, individual strata lots.

Due to the strata corporation insurance covering original fixtures (such as carpets) in an individual strata lot, the insurers of individual strata lot owners instruct their adjusters and brokers to make sure that, if possible, the insurer of the strata corporation covers a claim. This should be relatively straight forward, except there are instances in which there is damage to an individual strata lot originally installed or built fixture that is less than the deductible. In my view until the loss or damage to an individual strata lot reaches the amount of the deductible, one does not have a strata corporation insured claim and damage or loss to an individual strata lot in those circumstances is the responsibility of the strata lot owner. There is no claim on the strata corporation insurance and there is no deductible to address. If there is damage to common property in an amount less than the deductible, the strata corporation may have an action against the individual strata lot owner responsible, but again it is not an insurance deductible situation.

If a damage or loss exceeds the deductible, then the story is considerably different. If the owner were responsible for the loss or damage (the exact words of section 158(2)), the strata corporation, subject to its bylaws, collects insurance proceeds in excess of the deductible and the deductible is paid by the strata corporation. The strata corporation can then commence an action against the “responsible” owner. There are a number of strata property professionals of the view that because section 158(2) of the Act provides that a strata corporation can sue a responsible owner for the deductible portion of an insurance claim, the strata corporation cannot make an owner responsible for the deductible portion in any other manner. The writer strongly disagrees with that view.

The recent leading court case on the subject is The Owners, Strata Corporation VR 2673 v. Commissiona et al. The decision in this Supreme Court of British Columbia case was rendered August 17, 2000. The Court stated at paragraph 22 of the decision:

“In my view, section 158(2) does not create a right in the strata corporation to sue an owner; rather, it does not limit the capacity of the strata corporation to do so. Section 158(2) does not change the law. It sets out expressly what was not previously addressed by legislation (the Condominium Act), but was governed by common law. Whether a strata corporation can maintain such an action must be determined by all of the provisions of the applicable statute and the bylaws, rules and regulations of the strata corporation.”

The Reasons in the Commissiona case are very clear that when taking action against an owner on an insurance deductible, one can look to section 158(2), but that is not an end to it. One can, and must, also look at the bylaws of the individual strata corporation. It is for that reason that the writer recommends to strata corporation clients that a bylaw be passed noting that in the event of a shortfall due to the need to pay a deductible, an owner who has been careless or negligent shall be responsible for payment of the deductible, without the need to go to Court to prove it. In the Commissiona case there was a rule that expressly provided that damage to common property caused by the negligence of the owner would be charged to the owner of strata lot.

So what do we learn from all this legal mumbo-jumbo? Firstly, section 158(2) allows a strata corporation to sue an owner. Secondly, a strata corporation can take action against a named insured, namely an owner, to recover funds paid as the result of the carelessness or negligence of the owner. Thirdly, a bylaw can be passed that goes further than section 158(2). Fourthly, assuming the proper bylaw is in place, an owner can be responsible for a deductible, even if action is not taken.

In addition, it is my view that if an insurance claim with respect to an individual strata lot does not reach the amount of the deductible, the strata corporation is not responsible to pay the amount because it is not a deductible, it is just a situation of damage that is not an insurable claim. If the damage amount exceeds the deductible, then the strata corporation’s insurer will pay that excess and who is responsible for the deductible will depend upon the bylaws in place and whether the strata corporation sues the responsible owner or relies on its bylaws.