The Law and the overwhelming majority of declarations of co-ownership require that syndicates of co-owners insure their building. This may seem surprising at first glance as the syndicate does not own the private portions nor the common portions. However, its main object is to ensure the preservation and the longevity of the building and to manage and administer it diligently following rules of the trade. This is why the legislator has given to the syndicate an insurable interest and has made it compulsory that it subscribe building insurance.
The Risks Covered
The insurance must cover the common portions, the private portions (excluding the improvements carried therein), and the syndicate’s movable property. The insurance should be taken in the name of the Syndicate who will appear therein as the named insured. You must keep in mind that neither the co-owners nor their hypothecary creditors are the insured in this case. As for the improvements made to the private portions, it is the duty of each co-owner to protect them, by the means of their own insurance, including those that he or a previous owner may have made.
In addition, article 1070 of the Civil Code of Québec was amended in June 2018. Henceforth,it has a third sub-paragraph providing that "In addition, the syndicate keeps at the disposal of the co-owners a description of the private portions that is sufficiently precise to allow any improvements made by co-owners to be identified. The same description may be valid for two or more portions having the same characteristics.” This description, will serve as the reference unit. It must be filed in the register of the co-ownership, so that the co-owners requesting it may consult it. Remember that this new paragraph is directly related to the obligation to insure the entire immovable, including the private portions, to the exclusion of any improvements that would have been made therein (pursuant to article 1073 of the Civil Code of Quebec).
This new provision came into force on December 13, 2018, for co-ownerships established as of June 13, 2018. Those created before that date are not governed by it yet. They will be so governed on June 13, 2020.
For co-owners' syndicates that have neglected to produce this description, it is in their interest to do so now, because in the event of a disaster, there can be serious consequences. Section 1073 C.C.Q. (which comes into force on April 15, 2021) has been amended to indicate, among other things, that improvements made by a co-owner are excluded from syndicate insurance, " where they can be identified in relation to the description of that portion."
The syndicate's insurance policy must not only cover damage resulting from theft or fire, but also all the common risks. Your Board of Directors should therefore take out an "all-risk" insurance policy.
Starting April 15th, 2021, it should be noted that the law (Article 1073 of the Civil Code of Quebec) will require all syndicates of co-owners to take out insurance coverage whose risks are covered "by right". Not all syndicates will necessarily subscribe to all these coverages, but from now on, an insurance policy will have to specify the risks that are excluded. This should be expressly stated in the policy or in a rider in clear (typographical) characters.
However, only accidental claims will be covered. This protects against the damaging consequences of unpredictable, sudden and random events. Non-accidental damages are not usually covered by the insurer. Nor does it cover losses resulting from a defect inherent in the property, such as a latent defect or a defect in workmanship of the building. The same is true for damages resulting from a chronic lack of maintenance of the common areas by the syndicate. The syndicate must therefore ensure that they are rigorously maintained, since the insurer will not do so in its place.
Replacement (Reconstruction) Value
Since the reform of the Civil Code of Quebec in 1994, the law required the syndicate to take out insurance covering the "replacement value" of the building. In order to avoid ambiguity, the legislator now requires the syndicate, since April 15th, 2021, (or subsequently if insurance coverage expires after that date), to take out insurance covering the "reconstruction cost" of the building. This corresponds to the amount that would have to be paid to rebuild the entire building, in the event of a total loss, regardless of its state of disrepair. This reconstruction value must consider the cost of demolition, professional fees, such as those of the engineer or architect, the cost of retrofitting the building up to standard, usage and best practices, as well as applicable taxes (GST and QST). When taking out a policy, the damage insurance broker or agent will ask the Board of Directors for insurance required to ensure adequate coverage.
Required amount of coverage
To benefit from lower premiums, Boards of directors sometime have the tendency to underestimate voluntarily or involuntarily the value of their building. Failing to insure the immovable for its replacement value (of reconstruction) the amount paid out from the insurance may not be sufficient to cover rebuilding costs in the event of a total or partial loss. If a total loss occurs, the insurer is released by the payment of the amount of the insurance subscribed. If there is a partial loss, the indemnity will be calculated in accordance with the proportional rule. The directors of the syndicate could then engage the liability of the syndicate, and even be held personally liable.
To counteract this, the law provides that from now on, all syndicates will have to have the reconstruction value assessed for insurance purposes by a professional. The reconstruction value must be evaluated at least every five years by a Chartered Appraiser, member in good standing of the “Ordre des évaluateurs agréés du Québec (OEAQ)” (the Québec Order of Chartered Appraisers). This obligation will take effect on April 15th, 2021. Thus, with respect to a co-ownership for which the evaluation was carried out in the four years preceding April 15th, 2020, by a chartered appraiser, the syndicate will have five years following the date of this evaluation to have a new one carried out (Section 5 of the regulation).
The law (Article 1071.1 of the Civil Code of Quebec) will require every syndicate of co-owners, on April 15th, 2022, to set up a self-insurance fund that is liquid and available in the short term. This obligation is part of an existing practice in many co-ownerships. The sums accumulated belong to the syndicate, and are non refundable to co-owners who sell their private portion. In this regard, it should be noted that the government determined on April 15th, 2020, by regulation, the terms and conditions under which the minimum contribution of co-owners to this fund will be set. This fund will have to equal the highest deductible (Section 2 of the regulation), among all the insurance coverages subscribed by a syndicate. Note that for the purposes of this calculation, the deductibles for earthquakes and floods will not be considered.
This self-insurance fund is, first and foremost, intended to pay the deductibles provided for in the insurance policies taken out by the syndicate. It is also used to compensate for damage to property in which the syndicate has an insurable interest, where the contingency fund or an insurance indemnity cannot provide for it. The fund is established based on the deductibles and a reasonable additional amount to cover the other payments to which it is allocated.
WHAT YOU SHOULD KNOW! The Government of Quebec published in the Gazette officielle du Québec, on April 15, 2020, a regulation on divided co-ownership insurance, which specifies the terms and dates of entry into force of some of the provisions introduced by the bill. 141, in June 2018.
WHAT TO KEEP IN MIND: The Syndicate's insurance policy must provide, in all circumstances, for a waiver of any prospective recourse in subrogation against the co-owners, the persons who are a member of a co-owner’s household, the directors, the manager, the president and the secretary of the meeting of co-owners and the other persons responsible for its efficient progress. Since December 13, 2018, such subrogatory recourse of the Syndicate's insurer is legally excluded, except for bodily injury or moral damage or prejudice due to intentional fault or gross negligence.
WARNING! While purchasing the syndicate’s insurance coverage, the Board of Directors must declare any and all information likely to influence an insurer in determining the insurance premium, the appraisal of the risk or the decision to cover. If he fails to provide all relevant information to the insurer, the syndicate may be held liable for a denial of coverage or a reduced indemnity following a claim.
CONSULT THE PUBLICATION: Condo Insurance: Everything you should know at pages 27 and following.
Amount of insurance (insurance limit): Appraisal report Architect Bodily injury damage Building insurance (syndicate of co-owners) Chartered Appraiser Common portion Damage Insurance Damage Insurance Agent Deductible Earthquake Engineer Gross negligence Hypothecary creditor Insurance Insurance broker Insurance contract Insurance insufficiency (under insurance) Insurance policy Intentional fault (misconduct) Lack of maintenance of the common portions Moral damage Movable property Person who is a member of a co-owner’s household Preservation of the immovable Private portion Professional Fees Property Property and casualty insurer Property insurance Proportional rule Reasonable deductible Reconstruction cost Reference unit Retrofitting to standards Risk Rules of the trade (Best practices) Self-Insurance Fund Stated amount co-insurance clause Subrogation