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When an insurance loss occurs in a divided co-ownership: complicated dynamics between the syndicate, the co-owners and their insurers

When an insurance loss occurs in a divided co-ownership: complicated dynamics between the syndicate, the co-owners and their insurers

When damage occurs in a condominium building, the syndicate will often face various arguments from the co-owner who caused, or who is responsible for the damage, as well as the co-owner's insurer, that it's up syndicate to do the repairs and that neither the co-owner, nor his insurer should be involved. This position often stems from a misunderstanding of the particularities of insurance in condominium buildings, and of the rules governing civil liability.

The syndicate has an insurable interest in the entire building, including the private portions and must take out insurance against all usual risks, such as theft and fire, covering the entire building, excluding the improvements made by a co-owner to his portion. The amount of insurance coverage must be equal to the replacement cost of the building (art. 1073 C.c.Q.) According to comments of the Québec Ministry of Justice, the purpose of this provision is to avoid the multiplication of the insurance plolicies taken out by the co- owners individually, which would make the settlement of insurance claims very complex.

Therefore, the co-owner must take out insurance covering the improvements made to his private portion, as well as coverage for his or her civil liability. Every person has the duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage or law, so as not to cause injury to another. Where he is endowed with reason and fails in this duty, he is responsible for any injury he causes to another person by such fault and is liable te reparation for the injury, whether it be bodily, moral or material in nature. He is also liable, in certain cases, to reparation for injury caused to another by the act or fault of another person or by the act of things in his custody (art. 1457 C.c.Q.).

When a co-owner damages the building, the syndicate's insurance coverage will come into play on the condition that the cost of the damage is higher than the insurance deductible in the syndicate's insurance policy. The deductible is an initial uninsured amount and when the amount of the damage is lower than the deductible, the syndicate's insurer has no obligation to compensate the syndicate. In this case, the damage must be repaired, but who should pay the cost of the work and materials?

We need to remember that the syndicate's insurable interest in the private and common portions is a creation of the Civil Code of Quebec: the syndicate has an insurable interest in the whole building without being its owner. However, the principal case law on the subject takes the position that it is not up to all of the co-owners represented by the syndicate to suffer the financial consequences caused by the fault of one of them: “Amounts not covered, such as the deductible, constitute a loss for which the co-owner responsible is indebted to the syndicate. (….) To do otherwise would be contrary to the fundamental rules of civil liability to require all the co-owners to suffer the financial consequences of a loss caused directly by the fault of one of them” 1

So, when a loss claim is more than the deductible amount in the syndicate's insurance policy, the syndicate's insurer will pay-out after having subtracted the deductible amount. The syndicate will thus be short of funds to carry out the repairs. The syndicate must still carry out the repair work and temporarily make up the difference from the syndicate's general fund, but retains its right to take legal action for the amount of the deductible against the co-owner who is responsible.

Moreover, when no compensation is paid by the insurer because the amount of the damage is equal to or lower than the syndicate's deductible, the total amount of the damage is thus ''uninsured'' and constitutes a loss caused by the personal fault of a co-owner, or the co-owner's liability for a piece of property or thing for which he is legally responsible

In both cases, the syndicate can send a demand letter to the responsible co-owner demanding reimbursement of the amounts it has paid to have the repairs done. If the co-owner doesn't voluntarily pay this amount, the syndicate will have no other alternative than to take legal action against the co-owner and sue them for damages.

The co-owner will probably send a copy of the demand letter, or of the court claim for damages to his insurer. In response to the syndicate's demand or claim the co-owner's insurer may deny that the co-owner is responsible, or argue that it's up to the syndicate and all the co-owners to collectively pay for the damage, or the insurance deductible, whichever is applicable. This argument would be ill-founded in law in light of abundant case law on the subject, and often causes delays the insurance settlement and gives rise to litigation involving the syndicate, the responsible co-owner and his insurer.

The particular clauses of your building's declaration of co-ownership should be studied in each case in order to determine if will affect the duties and responsibilities of the syndicate and the co-owner concerned.

About the author

Me Kevin J. Lebeau, avocat

Diplômé de l'Université McGill (B.A.) et l'Université de Montréal (LL.B.), Me Lebeau est membre du Barreau du Québec depuis 2000.

Depuis 2001, il a exercé en droit immobilier avec concentration en droit de la copropriété dans plusieurs contextes, dont en milieu d'association, en société et en contentieux d'entreprise au sein d'une firme de gestion se spécialisant dans la gestion des copropriétés divise, Gestion Immobilière Ges-Mar Inc. Me Lebeau est également conseiller juridique aux membres d'Avantages Condo.

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