CONDOCENTRIC: INSURANCE: Case Law Revisited

CASE 1: Miluzzi v. York Condominium Corporation No. 60 (1996 – Small Claims Court)

The facts in this case are straightforward: The plaintiff’s unit was flooded; the plaintiff’s insurer repaired the damage and sought recovery from York Condominium Corporation No. 60. The primary issue was whether condominium insurance can exist with a deductible, and, if yes, what amount of deductible was reasonable.

The old Condominium Act was silent on the issue of insurance deductible. The Condominium Act, 1998 expressly provides that condominium insurance can exist with a deductible, and that, unless it is possible to pass on the responsibility to the unit owner, the deductible is a common expense of the condominium corporation.

Miluzzi remains relevant in providing guidance as to the amount of the deductible. Specifically, Miluzzi provides that a reasonable deductible should be expected by the unit owners and that the amount of the deductible can be determined in light of the Corporation’s prior history of claims under the policy. Miluzzi also provides that unit owners cannot object to the deductible amount provided the Corporation has not acted in an arbitrary or capricious manner.

The reasoning used in Miluzzi pertaining to the deductible amount was expressly adopted in the later decision of Stevens v. Simcoe Condominium Corporation No. 60.

CASE 2: Stevens v. Simcoe Condominium Corporation No. 60 (1999 – Ontario Court of Appeal)

Under the old Condominium Act, Stevens was the leading decision dealing with the recovery of an insurance deductible from unit owners. The facts of the case were relatively simple: the unit owner installed an air conditioning unit; water escaped from the air conditioning unit causing damage to another unit; the cause of the water escape was unknown; and negligence was not proven.

The Court found that, from a policy standpoint, the forced sharing of the deductible deprives the owners as a group of the disciplining effect that a deductible has upon claims. The Court went on to hold that the issue of liability for deductible is determined:

1. in accordance with the provisions of the declaration, by-laws and rules of the condominium corporation (defining the rights and obligations of the owners and the corporation); and
2. in accordance with the prevailing practice in the insurance industry, which is to shift the deductible portion of the loss to the party, causing the loss as a means of disciplining insurance claims.

The continued relevance of Stevens is not clear in light of section 105 of the new Act, and will likely require guidance from the Courts.

The new Act is relatively clear that, where an owner’s unit is damaged through the acts or omissions of that owner or the resident, the deductible amount is recoverable and may be added to the common expenses for that unit. The Act is also relatively clear that the ability to recover the deductible can be expanded to include circumstances where the damage was not caused by any act or omission of the corporation (this is consistent with Stevens as negligence was not proven on the part of the owner or resident).

The problems arise when one considers damage caused to other units or the common elements. Using the reasoning in Stevens, and looking to the condominium corporation documents for applicable authority, the deductible is recoverable. Until the Courts rule otherwise, it would likely not be unreasonable to conclude that the reasoning in Stevens, continues to apply and that the provisions contained in a condominium corporation’s declaration, by-laws and rules should govern recovery of the insurance deductible.

CASE 3: Peel Condominium Corporation No. 16 v. Vaughan (1996 – Ontario Court Gen. Div.)

This case stands for the premise that the waiver of subrogation, which exists between a condominium corporation and unit owners, does not extend to rental tenants. This premise and the reasoning of the Court should continue to apply under the Condominium Act, 1998.

At issue was the right of the Corporation’s Insurer to bring a subrogated claim against a tenant (not the owner) residing in a unit to recover damages following a fire caused by the tenant’s negligence.

The Court found that the Condominium Act, declaration and by-laws put in place a scheme to deal with damage caused by fire. The Corporation obtained coverage on behalf of itself and the owners, and they waived subrogation rights against each other. The Court held that (1) nothing in the Condominium Act affected a tenant’s risk, (2) the word "owner" in the documents and the Condominium Act did not include tenants and was not ambiguous, and (3) tenants are not covered by the Corporation’s insurance.

From “Common Elements” Fall 2002

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