Many condo insurance claims arise from liability
Condo Business
By David Outa
08 March 2017
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 damage
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...is another leading cause
of insurance claims
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.
often a crime of opportunity
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.
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