Many condo corporations have provisions in their declarations
that provide that the corporation can recover an increase in the
corporation’s insurance premiums from an owner who, by act or
omission, caused that increase (“Premium Increase
Provisions”). Practically speaking, the use of Premium
Increase Provisions will usually be a result of an increase in a
corporation’s “all-risk” insurance policy.
While commonly seen in declarations, in the past it was rare for
corporations to attempt to rely Premium Increase Provisions to
recover a higher premium amount from an owner. Given recent trends
in the condo insurance industry that have resulted in both premiums
and deductibles increasing substantially, more corporations are
considering whether an increased premium can be recovered from a
specific owner whose act or omission required the corporation to
make its most recent claim.
The most difficult challenge faced by a corporation is
establishing that one specific owner’s act or omission resulted
in a premium increase. Persuasive evidence would require an almost
perfect storm of events, such as the following:
- The Corporation receives a quote from an insurer, but does not
yet commit to the quote; - An owner’s act or omission results in a claim being made
after the quote was received; - The claim is brought to the attention of the prospective
insurer; - The same insurer rescinds its original quote on the basis of
the claim and provides a new quote; - No other claim or event occurs that factored into the
insurer’s new, higher, quote.
While there are a multitude of scenarios that could result in a
premium increase, the above series of events illustrates the
difficulty in establishing that one single owner’s act or
omission directly resulted in the premium increase. It is far more
likely that industry trends, past claims’ history and multiple
claims between policy renewals all factor together to result in an
increased premium.
Some corporations may also consider attempting to rely on the
acts or omissions of multiple owners that resulted in claims
between policy renewals as a justification to recover the increased
premium on a pro-rated basis from those owners. This is an
even more complicated scenario, and an adjuster or broker is likely
unable to provide a breakdown of how the increased premium could be
apportioned among the different owners.
While it understandable that corporations will look to reduce
the burden of an increased premium on the owners who have not
caused the corporation to make a claim, extreme caution should be
taken before attempting to rely on a Premium Increase
Provision.
In our view, a court would cast a critical eye on any attempt to
rely on a Premium Increase Provision. The amount of the premium
increase, and the fact that a corporation’s
“all-risk” insurance policy is properly maintained for
the benefit of all owners, would likely result in a court requiring
nothing less than a perfect storm of events to establish that an
owner’s act or omission directly resulted in the premium
increase.
While commonly found in declarations, expectations of
successfully relying on a Premium Increase Provision should be
carefully managed. Corporations may be better served by looking
into measures, such as passing a Standard Unit By-law or monitoring
and safety systems, that could result in a lower premium at their
next policy renewal.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
