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.
