Condominium corporations present claims against their insurance policies for a wide range of reasons. Although, it is important to note that current trends in claims are not necessarily unique to condominiums.
That said, multi-unit residential dwellings and communities continue to present some unique claims challenges for insurers across the country. Experience as an insurance broker specializing in this segment shows that the majority of claims arise from liability — specifically slip, trip and fall injuries, water damage, and theft of funds.
Slip, trip and fall injuries
Liability imposes a legally enforceable obligation for which individuals and entities purchase liability insurance to compensate injured parties. As occupier of the common elements, the condominium corporation has a legal obligation to ensure that people entering and leaving the premises do not encounter hazards that could result in injury to themselves or their property. Generally, for legal responsibility to apply, it must be demonstrated that the corporation was negligent (it either acted contrary to or failed to act how a reasonable and prudent person would in a given situation).
According to Aviva Canada, one of Canada’s leading insurers, between 2002 and 2004 slip and fall incidents in Canada represented more than 50 per cent of all injury hospitalizations and more than 10,000 in-hospital deaths. It is the second leading cause of accidental death and disability after automobile accidents.
More challenging from an insurance perspective is that every claim, whether genuine or fraudulent, carries investigation and defense costs, even when no judgments are awarded. Zurich, another insurer, reserves at least $1 billion in North America to pay for slip, trip and fall claims.
Slips, trips and falls are a leading cause of insurance claims for condominium corporations. These incidents are mainly caused by slippery driveways, parking lots and walkways during winter, slippery floors, and trips due to uneven surfaces or objects on the ground.
It is true that accidents are unavoidable. However, a condominium corporation and its property manager can reduce the risk of a lawsuit through good risk management. One effective way is to transfer the risk by contract to a reputable, insured contractor.
Standard practices of such a contractor include regular snow and ice clearing based on needs. It’s important that the contractor logs the times and dates when services are performed, as this information is crucial in defending claims. Condominium corporations are commonly named as additional insured on the contractor’s insurance policy for liability arising out of the contractor’s operations.
All owners and property managers should take responsibility for quickly identifying and eliminating hazards, such as wet floors, deteriorating surfaces and ice buildup. It’s important for condo residents to remember that a lawsuit against the condominium directly affects them as owners of the corporation. For example, reporting an unusually slippery surface around the community mailbox and having salt applied promptly can eliminate an imminent accident and possible lawsuit.
Water is the new fire. Water claims represent a significant cost to insurers, which in turn affects the premiums condominium corporations pay. Historically, fire has been the biggest risk to property insurance with respect to severity. Due to improved fire safety and building code requirements, the frequency and severity of fire claims have diminished, notwithstanding the recent catastrophe in Fort McMurray, Alberta.
Factors such as changing weather patterns, aging infrastructure and human error, among others, have made water the leading cause of property insurance claims. Alarmingly, these events are not only more frequent, but have increasingly become more severe. The flash flood in Toronto in July 2013 was estimated to have cost the insurance industry $1 billion. Who can forget the images of stranded Go Train riders or the $200,000 Ferrari submerged and abandoned in waist-high floodwater! Just prior to that, Alberta was devastated by severe flooding causing approximately $1.7 billion in insurable damage.
Experts warn that such events will become the norm. Changing climate due to global warming has been blamed for the changes in weather patterns that result in these types of incidents. As the insurance industry incurs claims due to severe weather, the cost of flood coverage inevitably increases and is passed on to consumers. In some neighbourhoods, flood insurance coverage has disappeared altogether. It has been argued that the climate change experienced globally is irreversible and the best that can be done is make changes that will slow down the negative impact. However, there are aspects of water damage that can be controlled.
Sewer backup, which can cause severe damage and major insurance claims, can be effectively managed. One strategy is to upgrade storm water systems and replace old infrastructure, especially in urban areas where population density adds undue burden on storm sewer systems. For their part, residential homeowners can install backflow valves, which stop water from flowing back into basements. Another way to reduce the possibility of sewer backup damage is to install sump pumps and ensure they are operational. Also, the simple act of cleaning eaves troughs regularly and directing water away from foundations is yet another way to reduce claims arising from water damage. Some insurers even extend discounts to homeowners who take such preventative measures, recognizing their positive impact on claims.
Water damage is also caused by human errors such as overloading washing machines, neglecting to maintain appliances (e.g. dishwashers), and negligent workmanship during repairs. By being aware of these mistakes and paying attention to prevent them, condo residents can reduce claims and the resulting impact on insurance premiums.
Theft of funds
Theft of funds by board members, property managers and others with access to the condominium corporation’s funds is another leading cause of insurance claims. Recently, sensational news from the Burlington and Hamilton area told the story of a property manager who was found to have embezzled a total of millions of dollars from at least 10 corporations. Less sensational stories that go unnoticed because they don’t make the news can involve theft of various amounts, which have significant financial implications for condominium corporations.
Insurers offer fidelity coverage of varying limits, which a corporation may claim against in the event of theft. However, condominiums can adopt various checks and balances to reduce or eliminate the chance of being victimized by what is often a crime of opportunity. Such checks and balances include using cheques, preauthorized payments or third party collections instead of cash, and keeping paper trails. It’s good practice to require at least two signatures for cheque payments and have board members initial payments handled by property managers, as well as general oversight of invoices and financial records.
By proactively implementing risk management strategies, condominium corporations can effectively reduce the impact of these major causes of claims.
David Outa, BA, CIP, CRM. is a commercial account executive at Cowan Insurance Group Ltd. David has more than 13 years of experience in commercial and residential insurance. He specializes in insurance for condominium corporations at Cowan. David currently serves as a director of The Canadian Condominium Institute – Golden Horseshoe Chapter. He can be reached at [email protected]