Loss Assessment

What is a loss assessment?

A loss assessment is when condominium unit owners must pay for part of damage or other loss to the condo building’s shared property. The loss assessment is usually shared among all the building’s unit owners based on unit entitlement, but not always.

Condo ownership is different from other types of home ownership. A condo owner owns their own unit, but they’re also responsible for a share of the condo building’s common property. Common property includes hallways, lobbies, elevators, swimming pools… anything that’s part of the condo building but not part of anyone’s unit.

In a condo (a.k.a. strata, in some parts of Canada) corporation, all the individual unit owners are the shareholders. If a condo building has 10 equal units, each unit owner owns a 10% share of the corporation.

Condominium corporations have their own master insurance policies (or at least they should) that cover the common property. Unit owners have insurance policies that cover only their units and their personal property. Condo master policies and condo owner policies are designed so that together, all parts of the condo building are insured without any overlapping coverage.

When common property gets damaged, the condo corporation can make a claim against the master policy to cover the loss.

However, sometimes the master policy doesn’t have enough coverage for the loss. Also, many condo master policies have high deductibles, sometimes eclipsing $100,000.

To cover shortfalls or to pay high deductibles, condo corporations issue loss assessments to the unit owners. The unit owners each must pay a share of the shortfall or the deductible.

Condo corporations all have their own bylaws, which might create more situations in which the corporation could issue a loss assessment to the owners.

For example, if a pipe in your unit bursts and causes damage to common property, the bylaws might allow the corporation to make you pay the entire deductible on their insurance policy.

It’s also possible for a condo corporation to issue an assessment in situations other than insurance claims. For example, when a building develops widespread water leakage due to poor construction. Such a situation wouldn’t be covered by the corporation’s master policy, but they may be able to issue a special assessment to the owners to come up with the cash to fix the issue. This type of assessment, unfortunately, isn’t covered by personal condo insurance policies.

When it comes to personal condo insurance, most insurers offer coverage for loss assessments. Though, not every type of assessment is insurable—the aforementioned special assessments, for example.

Loss assessments where the condo owner is paying part of the corporation’s deductible, or for shortfalls in the master policy’s coverage, usually fall under loss assessment coverage.

If you’re a condo owner, and you’re unsure what coverage your policy includes for loss assessments, ask your insurer or take a look at your policy wordings.

How much loss assessment coverage do I need?

There’s no one-size-fits all loss assessment coverage limit. Since condo corporations are free to set their own bylaws, someone might need quite different coverage from someone else across the street.

To decide how much loss assessment coverage you need, you’ll need to look at your condo corporation’s master policy. That policy’s deductible and limit of coverage are both factors that determine how much loss assessment coverage you need.

If your condo corporation’s master policy has a deductible of $150,000, you need to consider that you may need to pay a share of that deductible one day. Depending on your corporation’s bylaws, there may even be unfortunate situations where you’ll be liable for the whole deductible.

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