Publications
January 2019
PFD | Insurance

New legislative provisions on the insurance of divided co-ownerships

By Audrey Chevrette Lawyer

On June 13, 2018, the National Assembly of Québec passed and assented the Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions (Bill 141).

The act introduced major changes to the insurance of condominiums that came into effect on December 13, 2018. Established in the Civil Code of Québec, the new provisions are as follows:

1074.1. When a loss occurs which falls under the coverage provided for by a property insurance contract entered into by the syndicate and the syndicate decides not to avail itself of the insurance, it shall with dispatch see that the damage caused to the insured property is repaired.

A syndicate that does not avail itself of insurance may not sue the following persons for the damages for which it would otherwise have been indemnified by the insurance:

  1. a co-owner;
  2. a person who is a member of a co-owner's household; or
  3. a person in respect of whom the syndicate is required to enter into an insurance contract to cover the person's liability.

1074.2. The sums incurred by the syndicate to pay the deductibles and make reparation for the injury caused to property in which the syndicate has an insurable interest may not be recovered from the co-owners otherwise than by their contribution for common expenses, subject to damages it can obtain from the co-owner bound to make reparation for the injury caused by the co-owner's fault.

Any stipulation which is inconsistent with the provisions of the first paragraph is deemed unwritten.

1074.3. Where insurance against the same risks and covering the same property has been taken out separately by the syndicate and a co-owner, the insurance taken out by the syndicate constitutes primary insurance.

1075.1. An insurer may not, despite article 2474, be subrogated to the rights of any of the following persons against another such person:

  1. the syndicate;
  2. a co-owner;
  3. a person who is a member of a co-owner's household; or
  4. a person in respect of whom the syndicate is required to enter into an insurance contract to cover the person's liability.

An exception to this rule applies in the case of bodily or moral injury or is the injury is due to an intentional or gross fault.

First, article 1074.1 of the Civil Code appears to allow a syndicate not to claim the coverage provided by its insurance policy. Even so, the syndicate must quickly repair the damages caused by the incident since it is mandated to maintain the building and also has the obligation to mitigate any damages. While the syndicate is not required to use the insurance coverage, we are of the opinion that it should still report the incident to the insurer in order to maintain its coverage.

Under article 1074.2 of the Civil Code, a syndicate seems to have the right to sue a co-owner for damage caused by his or her own fault. However, doing so is prohibited under article 1074.1, para. 2. Article 1074.2 even appears to conflict with itself, since it stipulates that a syndicate cannot recover the sums incurred to pay the deductibles or repair the damage to the property from the co-owners, otherwise than by their contribution for common expense.

There is a contradiction between articles 1074.1. and 1074.2 of the Civil Code, and we must therefore wait and see how the courts interpret their application and determine the conditions under which a syndicate may seek recourse against a co-owner who is at fault.

Finally, article 1075.1 of the Civil Code limits the subrogatory recourse available to insurers of a co-owner and a syndicate against a liable third party. In this respect, despite the principle created under article 2474 of the Civil Code, an insurer is prohibited from taking subrogatory action with regard to a divided co-ownership against the syndicate, a co-owner, a person who is a member of a co-owner's household or a person in respect of whom the syndicate is required to enter into an insurance contract to cover the liable party.

Still, subrogatory recourse against a liable third party, even when the party is a person exempted, is possible in the case of physical or psychological harm or wilful misconduct or gross negligence.   

It goes without saying that these legislative changes will significantly impact condominium insurers. Indeed, insurance premiums are expected to increase since insurers' rights to recover the sums paid in indemnities to policyholders have been greatly diminished.

It will also be interesting to see how the courts interpret these new articles.