After being victims of a loss, the members of the board of directors and the affected co-owners are often caught off guard. How will things unfold? There is no need to worry or panic, because in principle, once the notice of loss completed, various stakeholders get involved: the insurer of the syndicate, but also that of co-owners and lessees, who will respectively designate their own claim adjuster. Generally the co-owners affected by a loss, as well as the syndicate, believe that making a claim is always the right thing to do. This is true in many cases, but sometimes the syndicate might want to refrain from doing so.
Declaring the claim: an obligation?
Even though many directors or managers still wonder about the obligation, or not, to declare a loss affecting the common and privative portions, take note that article 2470 of the Civil Code of Québec gives an unequivocal answer on this subject: "The insured shall notify the insurer of any loss which may fall under the coverage, as soon as he becomes aware of it. In other words, a loss –even negligible- must be declared to the insurer of the syndicate, insofar as the damages is covered.
Declaring the claim: consequences?
For many insured, the notice of loss will inevitably lead to a premiums and deductibles increase. Currently, no one can say with certainty that declaring a claim to their insurer - without making a claim - will increase the premium and deductible. Thus the board of directors must consult its damage insurance broker or agent. He will thus be able to inquire about the policies of the insurer in such circumstances. The best is to ask at the occasion of the renewal of the insurance policy, or at subscription with a new insurer.
Not declaring the loss: consequences?
It is risky not to report a loss, because the insurer might consider - should it later find out - that the insured is in bad faith. It would therefore be justified to resiliate or not to renew the insurance policy. The insurer could also set up, against the insured, any clause of the policy providing for forfeiture of the right to indemnity, insofar as he can prove that he has suffered injury.
To claim or not to claim? A new choice
Is it still always appropriate to submit a claim to the insurer for damage to the immovable, if the cost to repair it is slightly higher than the amount of the deductible? This the sixty four thousand dollar question. In this regard, the legislator introduced an innovative provision, pursuant to an amendment to the Civil Code of Québec, resulting from Bill 141 (sanctioned June 13, 2018). The first sub-paragraph of article 1074.1 of the Civil Code of Québec, which came into force on December 13, 2018, now provides the syndicate with the possibility of not claiming from its insurer for damage to the immovable. This liberty of choice may prevent an increase in premiums and insurance deductibles.
Filing a claim: the insurance indemnity and its purpose
In principle, an insured can do whatever he wants with the indemnity paid out by his insurer. However co-ownership is an exception to this rule with regard to the syndicate’s property insurance . Why? Because the law requires it to take out insurance covering the "replacement value" of the immovable. In other words, the indemnity paid out can only be used to repair the damaged premises, so that they are restored to their original state. In order to avoid any ambiguity in this respect, the legislator imposed on the syndicate to use of the indemnities paid to repair all the damages. This rule of law will be crystal clear as of June 13, 2021 at the latest, namely that the syndicate will have to take out insurance covering the "reconstruction cost" of the immovable.
Is it better not to make a claim?
Sometimes a claim will do more harm than good, given the long-term consequences it may have. And for good reasons, since the syndicate’s premiums and deductibles could increase, and not decrease for a long time. The syndicate may not want to make a claim to its insurer for damages caused by a loss, even if the amount to be paid for the repairs is higher than the deductible. This can happen, for example, if the deductible is $ 10,000 and the cost of the work is around $ 15,000. But before choosing this option, the board of directors must:
Abstaining from making a claim: the price to pay
If the syndicate decides not to claim an indemnity, it becomes, so to speak, its own insurer. For this reason, he must undertake the work itself (diligently), so that the affected common portions and private loss are repaired. The preparation of specifications will be necessary to determine the extent of the reconstruction work to be done, and to establish their cost. Depending on the magnitude of the damage involved, the services of a building professional may also be required, to assess the possible impact of the loss on the integrity of the immovable. In the end, the syndicate will have to assume the entire cost of the work (article 1074.1 of the Civil Code of Québec), with the exception of the cost associated with the added value resulting from the improvements made to the private portions.
Abstaining from making a claim because of the deductible: the consequences?
If the syndicate does not claim an indemnity for damage caused by a loss, because of a deductible higher than the cost of repair work to be done, the law does not formally compel it to diligently undertake the repairs of the damaged private portions. Does that necessarily mean, however, that it is exempted from this obligation? We do not believe so, because article 1071.1 of the Civil Code of Quebec will require the syndicate, no later than June 13, 2022, to set up a self-insurance fund intended, inter alia, to pay the deductibles of the insurance subscribed by the syndicate. Therefore, a syndicate of co-owners could hardly allege that it is not compelled, from a financial standpoint, to assume the repair costs (not assumed by the insurer) of the common and private portions.
WHAT YOU SHOULD KNOW! In the occurrence of a loss in a co-ownership, the self-insurance fund will be used to pay the syndicate's deductible, as well as the repairs of damage caused to property in which it has an insurable interest. This will be the case if the contingency fund or an insurance indemnity cannot provide for it, for example in the case of an insurance limit, of underinsurance or of an exclusion.
WHAT TO KEEP IN MIND: When renewing the insurance contract, insurers evaluate the frequency of losses and claims for a given co-ownership, to establish the amount of the premium and of the deductible.
WARNING! As a director, How can you establish if you should make a claim (or not) under the syndicate’s insurance? To make a sound decision, you must get an estimate of the cost of the repair work to be carried out. Only then can you decide if the financial risks are worth it.
CONSULT THE PUBLICATION: Condo Insurance: Everything you should know.