3 Facts About Insurance Your Condo Corporation Should Know
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You and your fellow board members want what’s best for your condo corporation. You’re serious about your fiduciary duty and about protecting the corporation’s interests. Misunderstanding some important facts about insurance can actually put your community may be at risk.
Having a knowledgeable insurance agent or broker whom you can trust is crucial. Agents who have worked with condo corporations will understand what kind of insurance you need to comply with the requirements of the Alberta Property Act and your own bylaws and declarations. Most importantly, their experience will enable them to create a tailored program that gives you the most value for your money. A good property management company can guide you in choosing the right agent.
You’ll also prevent potential problems by reading on to learn 3 important facts that many condo corporations get wrong. (Please note that the information that follows isn’t intended as professional advice. Consult with a qualified insurance agent to address your corporation’s insurance needs.)
1. Your D&O liability insurance is a “claims-made” policy, not an “occurrence” policy.
Your board probably realizes the importance of having directors and officers (D&O) liability coverage. This insurance provides protection against costly allegations and lawsuits for board members and their spouses, volunteers and committee members, property managers and property management companies, and staff. But unlike other types of policies, your D&O insurance is a “claims-made” policy rather than an “occurrence” policy. Occurrence policies will cover incidents that occur while the policy is in effect. Claims-made policies will cover them if the policy is in effect at the time that the claim is made.
“This distinction is important,” says Pat Schettino, director of national property programs at FirstService Financial in Canada. “In some cases, claims may not be filed until long after an incident has occurred.” Schettino stresses that “To reduce the possibility of it being excluded, it’s important to file a claim as soon as possible. As long as your corporation has D&O insurance in place when the claim is filed, it really should not matter when the incident happened, but filing promptly is vital. Any past, present or future officers and board members may be covered depending on the wording of the policy.”
Schettino also points out that your D&O policy should have a retroactive date and/or a “Full Prior Acts” clause that is dated back to the time the corporation was formed. “Even if you didn’t get the policy until later, this ensures that you’re covered for incidents that occurred from day one,” he says. Schettino advises that you discuss changing your D&O policy with your agent if one or both of these isn’t included.
2. Your umbrella policy does not supplement your property insurance.
Many boards believe their umbrella policy will kick in after the limits of their property insurance have been exhausted, but that’s just not true. Umbrella policies supplement general liability coverage, but not property coverage. Because of this misconception, board members choose to lower the coverage amount under their property insurance in an effort to save money for the corporation. While they think the corporation has an adequate amount of coverage, what they have actually done is put it at far greater risk. Obtain the right level of property insurance from the start so your condo won’t ever be in this situation.
Many boards believe their umbrella policy will kick in after the limits of their property insurance have been exhausted, but that’s just not true. Umbrella policies supplement general liability coverage, but not property coverage. Because of this misconception, board members choose to lower the coverage amount under their property insurance in an effort to save money for the corporation. While they think the corporation has an adequate amount of coverage, what they have actually done is put it at far greater risk. Obtain the right level of property insurance from the start so your condo won’t ever be in this situation.
3. You need to have all 3 types of coverage in a building ordinance and law policy.
Your property insurance policy may not provide enough coverage by itself if yours is an older condominium. Here’s why: Towns and cities sometimes require that you bring a building up to current code when you rebuild. However, property insurance will only reimburse you for the cost of rebuilding to the original code. As a result, your corporation is left with a gap in coverage if you don’t have all of the following 3 parts of a building ordinance and law policy:
Your property insurance policy may not provide enough coverage by itself if yours is an older condominium. Here’s why: Towns and cities sometimes require that you bring a building up to current code when you rebuild. However, property insurance will only reimburse you for the cost of rebuilding to the original code. As a result, your corporation is left with a gap in coverage if you don’t have all of the following 3 parts of a building ordinance and law policy:
- Loss to the Undamaged Portion of the Building. According to the ordinances in certain areas, a building that has sustained severe damage (usually 50 % or more), must be completely demolished and rebuilt to current standards. This coverage will reimburse your corporation for a total loss rather than just for partial damage.
- Demolition. The cost of demolishing the undamaged portion of a partially damaged building is reimbursed by this part of your coverage.
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Increased Cost of Construction. This part covers the cost of additional construction necessary to meet current codes when rebuilding an older building. For example, the cost of installing a fire sprinkler in a structure that sustained major fire damage would be covered.
Keeping up with the insurance needs of your condo corporation isn’t simple. However, by partnering with a property management company committed to going above and beyond, you’ll know you’re covered. Communities managed by FirstService Residential get exclusive access to enhanced insurance offerings from our affiliate, FirstService Financial. Enjoy the peace of mind of having the right coverage while saving money for your corporation!