Understanding Strata Corporation Earthquake Insurance Deductibles

Understanding Earthquake Deductibles in Strata Corporations

British Columbia is located in a seismically active region, making earthquake insurance a crucial consideration for strata corporations and individual homeowners alike. One of the most significant aspects of earthquake insurance is the deductible, which can be substantial. Understanding how these deductibles work and what obligations a strata corporation has in the event of a major seismic event is essential for strata councils and owners.

What is an Earthquake Deductible?

Unlike standard property insurance, earthquake insurance deductibles are typically calculated as a percentage of the building’s insured value rather than as a fixed dollar amount. In most cases, earthquake deductibles for strata corporations in BC range from 10% to 15% of the total insured value of the property. Given that many strata buildings have appraised values in the tens or even hundreds of millions of dollars, this can translate to a deductible in the millions.

For example, if a strata property has an insured value of $50 million and a 10% earthquake deductible, the strata would need to come up with $5 million before insurance coverage would apply to any earthquake-related damage.

Strata Corporation Obligations

Under the Strata Property Act, strata corporations are required to maintain property insurance, including coverage for major perils such as earthquakes. However, the deductible is the responsibility of the strata corporation and, by extension, the owners. If an earthquake causes damage and a claim is triggered, the strata may need to levy a special assessment on all owners to cover the deductible.

Homeowner Considerations: Insurance Against Special Levies

Since the strata corporation will generally fund the deductible through a special levy, individual owners need to be aware that they may be responsible for a share of what could be a significant financial burden. Fortunately, individual homeowners can purchase earthquake deductible assessment coverage as part of their personal strata insurance policy.

This type of coverage helps protect owners from having to entirely pay out-of-pocket for their portion of an earthquake deductible levy. Homeowners should consult with their personal insurance provider to ensure they have adequate coverage and understand the limits and conditions of their policy; as well, as a proactive homeowner you may want to consider changing/aligning your personal homeowner insurance renewal with the strata corporation’s insurance renewal (or shortly thereafter).

Proactive Planning and Risk Mitigation

Strata councils and individual owners can take steps to mitigate the financial risk associated with earthquake deductibles:

• Review Insurance Policies Annually: Strata corporations should regularly review their insurance policies and deductible amounts with their broker. As well, make sure that your strata corporation has an updated insurance appraisal undertaken and completed by a qualified vendor prior to every annual insurance renewal. 
• Educate Owners: Many owners are unaware of their potential liability for an earthquake deductible levy. Strata councils should provide educational materials and encourage owners to obtain appropriate insurance.

• Maintain a Contingency Reserve Fund (CRF): While the CRF cannot always be used to cover insurance deductibles, a well-funded CRF can help support emergency repairs and reduce financial strain.

Conclusion

Earthquake deductibles are a critical but often overlooked aspect of strata insurance in British Columbia. Given their potentially massive financial impact, strata corporations and homeowners must be prepared. By understanding their responsibilities, maintaining adequate insurance, and planning ahead, both strata councils and individual owners can better navigate the financial risks associated with a seismic event.