What’s a Reasonable Deductible for Condominiums?

There has been a lot of talk recently about the sizable increases in insurance premiums that the condominium industry has experienced in recent years. Various reasons for the increases are often provided, like increased weather-related risks and an aging housing sock. Condominiums are often told to increase the deductible on certain types of damages, such as water damages, to combat the increasing premiums on their policies.

Ten years ago, I would often see deductibles of $5,000.00 or $10,000.00. Those amounts are now only seen in condominiums where the owners are responsible insuring their own units like in vacant land condominiums. It is much more common to see deductibles of $25,000.00 or more now. Some condominiums even have water deductibles as high as $250,000.00 because of a history of water claims.

Ordinarily, the deductible under the condominium’s policy is a common expense shared by all owners, but the condominium can pass a by-law to shift the responsibility for the deductible under its policy to the owner of the damaged unit (or possibly another unit in some situations, like where an owner causes damage to another owner’s unit). These by-laws can reduce the chances the condominium will need to file a claim under its own insurance policy, thereby preventing further premium increases because of a history of claims.

The Condominium Act, 1998, (the “Act”) requires condominiums to maintain insurance for damage to the units and the common elements caused by major perils or other perils specified in the declaration or by-laws of the condominium. Subsection 99(7) of the Act states that the insurance must cover the replacement cost of the property damaged, subject to a “reasonable deductible”.

What exactly is a reasonable deductible?

A recent case sheds some light on the question. It was an application by the owners for an order declaring a lien registered on their unit invalid and requiring the condominium to discharge the lien. A toilet in the owners’ unit overflowed. The leak damaged several other units and the common elements and the total repair cost was $42,233.47. The condominium’s deductible was $50,000.00. The by-laws required owners to pay the portion of any loss not covered by the condominium’s insurance (i.e. the deductible). As a result, the condominium charged the entire amount to the owners of the unit with the leaking toilet. The condominium registered a lien on the unit when the owners did not pay.

The owners took the position that the condominium could not establish that they were responsible for the water leak that caused damage in the building. They argued the superintendent was not an expert and his opinion was not admissible. They also contended it was oppressive for the condominium to maintain an unreasonably high deductible. They also challenged the lien registration.

The condominium argued that the evidence clearly established that the owners were responsible for the water leak and damage. The condominium argued the lien was valid as it was properly registered according to the Act. Finally, the condominium denied that it acted oppressively by maintaining a higher deductible under its insurance policies as it had not breached any reasonable expectations of the owners and it did not treat the owners differently than the other unit owners.

The judge dismissed the owners’ application.

The judge confirmed that the condominium had the onus of demonstrating the owners are responsible for the overflowing toilet and resulting damage. The condominium did not need to prove negligence. The question was – but for the owners’ (or tenants’) act or omission, would the damage have occurred? The judge was satisfied that there was sufficient evidence that the owners were responsible for the water leak that caused damage to the building. The superintendent’s evidence clearly established the toilet flap was ajar and a blockage in the toilet caused it to overflow. His evidence was that there were no other leaks or blockages in the building and the water shut-off valve next the toilet was inoperable.

The judge reviewed the condominium’s by-laws, which stated that owners were responsible for any damage caused to other units or common elements where the damage was caused by an act or omission of either the owner or their tenant. It also stated that the owner was responsible for the lesser of the deductible or the cost of repairing the damage. The judge was satisfied that there were two acts or omissions by the owners and/or their tenants: 1. The cause of the toilet overflowing was a blockage caused by the tenants; and 2. The owners failed to maintain the shut-off valve for the toilet.

Can a deductible be oppressive?

The interesting part of the decision (for me anyway) is the discussion about whether it was oppressive for the condominium to have a higher deductible. The owners argued the condominium had violated subsection 99(7) by having a $50,000 deductible as that was not a reasonable deductible as required by that section. This is an interesting argument as there has always been some debate in the industry as to what a “reasonable deductible” is and when a deductible is too high.

The judge reviewed the test for oppression under section 135 of the Act. There was no evidence submitted by the owners of their reasonable expectation. There was nothing filed to show what would be considered a reasonable deductible or even what the owners’ own views about it were. The judge stated: “The court cannot simply look at the deductible in this case and conclude it is unreasonable without any evidence about what deductible is common amongst other condominium corporations.”

As for the second part of the test, there was no evidence to suggest the selection of the insurance deductible or its application to the owners amounted to oppression, unfair prejudice, or unfair disregard. The board’s decision about the amount of the deductible was entitled to deference as the board was in a better position to make that decision than the court. There was nothing to suggest the amount sought was improper as the invoices were detailed enough to determine the repairs were required because of the water damage. Even if the amount of the lien was incorrect (which the judge was not convinced of), that did not invalidate the lien as it could be corrected according to previous case law. Lastly, it was not oppressive for the condominium to register the lien as it had a legal right to register it and the possible consequences for the owners (i.e. default under their mortgage) did not prevent the condominium from doing what it was legally entitled to do. 

This is a remarkable case for a variety of reasons as set out above. It will be interesting to see how future cases treat this case. Is a $50,000 always a reasonable deductible going forward? Will there be cases where it is not? How about $100,000 or $250,000 deductible? Does the type of building or number of unit matter? What if the deductible was sharply increased shortly after the owners purchased their unit?