At a recent annual general meeting, the owners were advised that their reserve fund was not properly funded over the years and repairs needed to be done to the roofs and parking garage in the very near future. There was discussion around special assessments and how owners would be paying those amounts. There was also mention of owners getting “special assessment insurance” and owners were left with the impression that this type of insurance would cover any special assessments needed to carry out repairs. This is not the case.
As we all know if the amounts in a reserve fund are inadequate to meet the expenditures required, or if unforeseen circumstances bring forth an unexpected increase in the Corporation’s operating expenses, then the board of directors may need to levy a special assessment. Unfortunately, unit owners are stuck with this cost; however, there are instances where unit owners may have recourse to insurance to cover their share of the special assessment. A couple examples are discussed below.
I. TITLE INSURANCE
Most real estate lawyers will recommend that purchasers buy title insurance when purchasing a condominium unit. Title insurance is intended to offer purchasers protection against a number of factors, including special assessments that may not have been disclosed in the Status Certificate.
We have all heard the horror stories of purchasers being stuck with special assessments after the completion of their purchases. Even though the corporation was aware that a special assessment might be levied or was aware of circumstances that might result in the need for a special assessment in the near future, this information was not disclosed in the Status Certificate. In these circumstances, title insurance may compensate purchasers for their portion of any special assessment.
II. SPECIAL ASSESSMENT INSURANCE
A unit owner can also obtain insurance coverage specifically for special assessments. This coverage will benefit a unit owner in circumstances where a condominium corporation suffers an insured loss, the insurance proceeds are inadequate to cover the costs, and the corporation levies a special assessment for the difference. This would only occur in very unusual circumstances.
A real life example involves a condominium corporation that incurred environmental clean-up costs because of a heating oil leak into the common elements. The town home units in this condominium had oil tanks that were buried in the common elements, which serviced each individual unit’s furnace. Pipes ran through the concrete basement floors of the units from the heaters to the oil tanks. As a result of a pipe break, oil seeped into the ground and the resulting environmental clean-up cost was over $300,000.
Over the years, several of these pipes had broken and the corporation had taken out the maximum available environmental coverage, at that time, in the amount of $10,000.00. The remainder of the clean-up cost was paid for by way of a special assessment. Unfortunately, when this happened, no one considered whether the unit owners’ insurance policies included special assessment coverage. When this inquiry was finally recommended, the deadline for making a claim had long passed. As it turned out, all but one of the unit owners had special assessment coverage. Had the right advice been given, the unit owners’ insurers would have paid their proportionate shares of the special assessment and the owners would not have been out of pocket. Needless to say, it’s important to not only obtain the coverage, but remember that there may already be coverage under an existing policy.