Importance of Insuring to Full Replacement Cost

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Body Photo Size 2The most important asset to any condominium corporation is the property itself. 

The Ontario Condo Act states that “Subject to a reasonable deductible, the insurance required under this section shall cover the replacement cost of the property damaged by the perils to which the insurance applies. 1998, c. 19, s. 99 (7).”

Here are two examples illustrating the importance of reviewing the adequacy of your insurance coverage annually.

Sufficient Insurance Coverage

Having sufficient insurance coverage offers unit owners peace of mind in the event of a total loss. A recent example of a condominium not having sufficient coverage resulted in owners having to pay out of their own pockets for a shortfall in coverage. In August 2019, a condominium in BC experienced a total loss due to fire. During the rebuild, the owners learned that they were underinsured for $3.2 million. Each unit owner is now facing levies ranging from $36,000-$57,000 to make up for the deficit. https://www.cbc.ca/news/canada/british-columbia/condo-insurance-fire-1.5829511

Fulfill your Fiduciary Duty

Condominium corporations are required by the Ontario Condo Act to insure the standard units and common elements to full replacement cost. By not insuring to full replacement cost, it is possible that individuals tasked with administering the condominium can be found to have failed in their fiduciary duty to the property owners. 

This was the case for a Quebec Condominium Syndicate who experienced a fire in 2008. Again, there was insufficient insurance coverage for the rebuild and unit owners were responsible for covering the deficit. While most owners covered their portion through homeowner’s insurance, some were unable to and took the board and property manager to court. The former interim administrator of the Syndicate was found 100% responsible for the amounts to be recovered as he had individually determined the amount required for property insurance while acting as interim administrator at a time when the Syndicate had no board of directors.http://www.advantagescondo.com/replacement-value-insurance-policy-the-court-confirms-the-obligation-of-the-syndicate-and-the-administrators-1.aspx

Determining Full Replacement Cost

The only way to be confident that you are insuring your property to full replacement cost is by having an annual insurance appraisal performed by an accredited third-party provider. A reliable and up-to-date appraisal considers not only the materials to rebuild, but also demolition and removal fees, labour and professional fees, upgrades to current bylaws and building codes, taxes, and inflation fluctuation.

There are additional benefits to obtaining an appraisal for your condominium.

Avoid Overpayment

Costs to rebuild fluctuate over time; year over year increases are inconsistent and it is also possible to have decreases, like we saw following the 2008 recession. Fluctuations in costs can be caused by changes in building price indexes or changes to bylaws and building codes, among other things. Condominium corporations could be carrying excessive replacement costs and overpaying on their insurance premiums. Determining full replacement cost annually ensures your premiums are in line with the market.

Avoid Co-insurance

When properties do not have an up-to-date replacement cost, they may be subject to a co-insurance clause. This clause requires the corporation to self insure a percentage of the property’s replacement cost. In the event of a total or partial loss, the corporation is responsible for covering a portion of the costs to rebuild, which is typically in addition to their deductible.

Protect Your Assets

To avoid financial and liability risks, make sure your properties are insured to full replacement cost. An up-to-date insurance appraisal, provided by a professional firm that specializes in this type of valuation, will provide peace of mind that your assets are protected. 


DSC 9848 EditWilliam Shin BA
Business Development Associate – Normac


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