Protecting your Condominium against Natural Disasters
Over the past week or so, many of us have seen or read about the damage that superstorm Sandy has wrought on much of the Eastern United States. The effects have been nothing short of devastating. Many have died and (as of the date of writing) estimates for total damage to property caused by superstorm Sandy amount to as high as $20 billion.
Although Ontarians were fortunately spared from the worst of superstorm Sandy’s wrath, we do not live in isolation from extreme or dangerous weather. Hurricane Hazel, Canada’s deadliest-ever natural disaster, killed 81 people in the Greater Toronto Area in 1954. Tornados are fairly common throughout Southern Ontario; earthquakes are not unknown (although usually relatively minor). Fires and floods – whether natural or human in origin – happen as well.
Events like superstorm Sandy bring home how critical it is for boards of directors of condominium corporations to recognize the seriousness of the risks posed by disasters (whether natural or man-made), and to plan accordingly.
Make Sure the Proper Insurance Policy is in Place
Condominium boards, like other businesses, should regularly review their insurance policies with their broker or insurance advisor to confirm that they have the proper insurance coverage in place and pay particular attention to any exclusions. Unfortunately, many people do not carefully read their insurance policies when they purchase them, and are shocked when they find out a specific type of damage is excluded under a policy. When this happens to a condominium corporation, the unit owners may find themselves responsible for paying for damage to the common elements as well as for all damages to their unit, unless their own Unit Owner’s insurance policy covers the loss.
The most comprehensive condominium insurance policies are written on an ‘all-risks’ basis, which generally means that any physical loss or damage to property is insured unless it is excluded in the policy wording. Standard ‘all-risks’ property insurance policies will typically exclude events like earthquakes, flooding, and sewer backup. Coverage for these sorts of occurrences can, and in most cases should, be purchased by the condominium corporation at an extra cost. If disaster insurance can be affordably obtained, transferring ‘disaster risk’ to an insurer will be a prudent move for most condominium corporations, because the potentially significant cost of repairing damage after a natural disaster can be well beyond what most condominium corporations can bear.
Having a strong balance sheet and healthy reserve fund is also important, because having the proper coverage in place is not always sufficient: the deductible under the policy may be high; damage or losses could exceed the maximum coverage under the policy; and some types of losses or damage may be excluded.
Emergency Preparedness Plan
All corporations should have a comprehensive emergency preparedness plan in place. Not only will an emergency preparedness plan deal with possible evacuation of residents, but it should also set out a protocol for the Corporation to follow in order to immediately assess damage and make any repairs needed to preserve the property and minimize loss.
While there is nothing that condominium corporations can do to totally shield themselves from disasters, following these steps will help condominiums ensure that they are in a good place to weather the storm the next time another ‘Sandy’ comes around.