Are your condo clients covered for ‘special assessment’ costs?

In an age when a condo corporation’s insurance may not provide enough coverage for an insured loss, brokers can help their clients by advising condo unit owners about the merits of special assessment insurance, one lawyer suggests.

“It is important to note that special assessment insurance only applies where the loss itself is insured, the corporation’s insurance coverage does not adequately cover the loss, and a special assessment is levied to pay for the costs,” Jason Rivait of Miller Thompson LLP explained recently in a blog written for Mondaq. “Although these circumstances are uncommon, we strongly recommend that all unit owners contact their insurers to ensure that they have special assessment insurance coverage. The cost is minimal and the benefits could be significant.”

A condo corporation’s insurance is intended to cover losses related to common elements in a building, such as lobbies, hallways, recreational rooms, and parking garages, to name a few examples. Where the insurance coverage falls short — and assuming the condo corporation does not have sufficient reserve funds to make up the difference — a condo corporation may try to recover the remaining funds through a “special assessment.” This makes condo unit owners responsible for their share of the assessed costs.

As Rivait observes, most real estate lawyers will recommend that people buy title insurance when purchasing a condominium unit. Title insurance is intended to offer purchasers protection against a number of factors, including special assessments that may not have been disclosed in the status certificate. But in some circumstances, “a condo unit owner may have coverage for a special assessment as part of his or her unit owner’s insurance policy.”

In making the case to advise condo unit owners about the coverage, Rivait cites a real-world example of a situation in which many condo unitholders didn’t know they had coverage for special assessments until it was too late. (No names were mentioned in the blog.)

For example, Rivait writes, the townhome units in one condominium building had oil tanks that were buried in the common elements and serviced each individual unit’s furnace. Pipes ran through the concrete basement floors of the units from the heaters to the oil tanks. As a result of a pipe break, oil seeped into the ground and the condo corporation had to pay more than $300,000 for the clean-up.

Over the years, some of the pipes had broken and the corporation had taken out the maximum available environmental coverage of $10,000. The remainder of the clean-up cost was paid for by levying a special assessment.

“Unfortunately, when this happened, no one suggested that the unit owners check to see if their unit owner policies included special assessment coverage,” Rivait wrote. “When it was finally recommended, the time in which to make a claim had long passed. As it turned out, all but one of the unit owners had special assessment coverage and, had the right advice been given, their individual insurers would have paid their proportionate shares of the special assessment.”

Feature image courtesy of iStock.ca/wwing