Sunday, February 27, 2011

Reimbursement by an owner of a condominium unit of the payment of an insurance deductible by the condominium corporation

It is settled law that condominium corporations in Alberta are not permitted to sue an owner for loss or damages caused by an owner if such loss or damages are required to be covered by insurance placed by the condominium corporation.  However, the law is not as clear in respect of whether a condominium corporation can seek reimbursement from an owner of a deductible which has been paid by a condominium corporation pursuant to an insurance policy in respect of an insurance claim made in respect of the owner.  It is suggested that in light of recent decisions of the Alberta Courts that the ability to claim reimbursement is dependent on the manner in which such obligation is stated in the bylaws of the condominium corporation.

Section 47 of the Condominium Property Act (Alberta) requires, among other things, that condominium corporations “place and maintain insurance on the [condominium] units, other than improvements made to the units by the owners, and the common property against loss resulting from destruction or damage caused by any peril prescribed by or otherwise required by the regulations to be insured against”.  Section 61(1) of the Condominium Property Regulation (Alberta) lists the perils which must be insured against and references “any other perils as required in the bylaws”.

The Honourable Mr. Justice Jean Côté of the Court of Appeal of Alberta in Condominium Corporation No. 9813678 v. Statesman Corporation, 2007 ABCA 216  allowed an appeal by the appellant and developer, Statesman Corporation, and concluded that the lawsuit of Condominium Corporation No. 9813678 against Statesman Corporation must fail because there is generally no right to sue a party who is also an insured under a policy of insurance.  Statesman Corporation was an owner of units in the condominium and an insured under the condominium corporation's insurance policy.  Justice Cote commented generally about the underlying purpose of condominium insurance at paragraph 35:

 “Those concerned in a condominium development do not want to have to worry about such unpredictable and complex topics. They want to exclude fault, risk, causation fights, tedious technical investigations, and expense. Statute and bylaws direct the condominium corporation to take out one policy for all, to avoid delay, expense and uncertainty. They replace lengthy litigation with an immediate no-fault purse for all.”

Justice Cote went on at paragraph 72 to state this limiting principal and clearly state that the bylaws are a contract amongst the owners and the condominium corporation:

 “The bylaws of this corporation provide that all insurance must have a waiver of subrogation against the owners and against the corporation’s manager. And they say that policies must name as insureds all owners from time to time. Those bylaws are a contract among the corporation and all its members.”

The Statesman case did not deal directly with the issue of reimbursement by an owner of a condominium unit of the payment of an insurance deductible by the condominium corporation.  However, the case clearly states the principal that all condominium owners are bound by the bylaws and that this is a contractual obligation.  Hence if the bylaws of a condominium corporation clearly state that an owner of a condominium unit should be obligated to reimburse a condominium corporation for the payment of the insurance deductible then it follows that an owner is contractually obligated to reimburse the condominium corporation.

Notwithstanding the compelling logic of this proposition, Honourable Mr. Justice Donald Lee of the Court of Queen's Bench of Alberta in Shivji v. Owners: Condominium Plan No. 0122336, 2007 ABQB 572 denied the claim of a condominium corporation for $23,467.35 for damages caused by an owner's tenant setting the thermostat to zero which caused the pipes to freeze and burst.  The deductible of the condominium corporation was $25,000.00.   Justice Lee considered the Statesman case, among other cases, in his reasons but does not address directly the issue of whether the insurance deductible should be reimbursed by an owner if the bylaws specifically state that it should.   

It is suggested that, so long as the bylaws of a condominium corporation clearly specify that it is the obligation of an owner to reimburse the insurance deductible paid by the condominium corporation, it remains open for condominium corporations to argue that by virtue of the bylaws, which the owner is contractually bound, the owner is liable to reimburse the insurance deductible.   The insurance deductible is a portion of the loss which is not paid for pursuant to the insurance policy.  The owner is through the condominium corporation the insured under the insurance policy and would normally as a home owner be required to pay the insurance deductible.  The insertion of the condominium corporation between the insurance company and the owner should not change this.  Where a deductible is required to be paid the owner must be liable for this financial connection to the loss which is being claimed pursuant to the condominium's insurance.  Otherwise this implicitly allows an owner to pass on to the balance of the owners all but the owner's proportionate unit entitlement portion of the insurance deductible.  It is suggested that this result should be avoided if the bylaws are clear. 

Some cases allow for recovery and others have not.  Of note other Provinces in Canada have allowed for the recovery of the insurance deductible if the language used in the bylaws is reflective of the owner being "responsible" for the insurance deductible regardless of fault or negligence.  Following from this it behooves condominium corporations to review their bylaws to be sure that their bylaws are clear in respect of an owner's obligation to reimburse the payment of an insurance deductible made by a condominium corporation.