The Importance of Insuring a Condominium for Its Full Replacement CostThe Importance of Insuring a Condominium for Its Full Replacement Costhttp://chad.ca/en/members/professional-practice/industry/condominium/427/the-importance-of-insuring-a-condominium-for-its-full-replacement-cost

​​Me Jannick Desforges, LL.B., Director of Institutional Affairs and Professional Practice Compliance

This summary does not constitute a legal opinion. The information it contains may not reflect the current state of the law.

Under the Civil Code of Québec (section 1073), the syndicate of co-ownership is required to take out insurance equal to the replacement cost of the building. A recent decision rendered by the Court of Quebec serves as a reminder of this obligation1.


The Facts of the Case

In 2008, a fire destroyed a building held in divided co-ownership (a condominium). The insureds’ condominium units were considered to be a total loss. The syndicate of co-ownership made a claim to its insurers for the common portions of the building while the insured-co-owners did the same for their private portions.

The insurance benefit was insufficient to cover the cost of rebuilding: the insurance shortfall amounted to $454,938. To make up for this shortfall, the co-owners each had to pay a special assessment of $6,119.

The majority of the co-owners were insured against an insurance shortfall. However, the insurer of two of the co-owners “informed them that they were not insured against the consequences of insufficient insurance coverage. Indeed, given the fact that the unit was used for commercial purposes, […] it was necessary to specifically take out this type of coverage, which they had not done when they purchased the insurance.”

The two co-owners therefore made a claim against the syndicate of co-ownership and the temporary administrator for $6,119. The co-owners faulted them for having insufficiently insured the building in which they were divided co-owners.

The syndicate of co-ownership challenged the application, maintaining “that the applicants were the only divided co-owners who had to pay this special assessment themselves, since the other co-owners were insured against the consequences of an insurance shortfall.” The syndicate also maintained “that it was up to the co-owners to purchase an endorsement from their insurer to cover insufficient insurance and that this omission caused the damages they suffered.”

The two co-owners “maintained that it was up to the syndicate […] to insure the building for an amount equal to its replacement cost. According to them, this obligation stemmed both from the declaration of co-ownership and section 1073 of the Civil Code of Québec.”

They also maintained that under the circumstances, the temporary administrator should be held personally liable since he alone had made the decision to not insure the building for an amount equal to the replacement cost.


What about the syndicate’s liability?

The court pointed out that the syndicate did not fulfill its obligation to insure the building for an amount equal to its replacement cost—an obligation provided for both under the Civil Code of Québec and the declaration of co-ownership. It concluded that the syndicate was liable for the harm suffered by the applicants and sentenced it to pay the sum of $6,119.

The court also mentioned that “the declaration of co-ownership contained no provision requiring the co-owners to purchase supplementary insurance to protect them against insufficient insurance coverage. Nothing would have prevented the co-owners from purchasing such coverage at their own cost, however that does not lessen the syndicate’s clear obligation to insure the building for an amount equal to its replacement cost.”


What about the personal liability of the temporary administrator?

The court noted that at the time of the fire, the building under divided co-ownership was administered by a temporary administrator. It was he who made the decisions regarding insurance coverage.

“Having himself been involved with the company that built the units, [the temporary administrator] was in a privileged position to evaluate the replacement cost. He had access to all the information regarding construction costs.”

The temporary administrator “justified his mistake by explaining that he had forgotten to include sales tax when estimating the building’s replacement cost and that the shortfall was equal to these taxes.” The court concluded that the temporary administrator had not acted as a prudent and diligent administrator.

The court found that, under the terms of the Declaration of co-ownership and the Civil Code of Québec, the temporary administrator had made a mistake when he purchased the insurance coverage. He was therefore also found liable for the harm suffered by the applicants. ​​

What section 1073 of the Civil Code of Québec stipulates:

“The syndicate has an insurable interest in the whole immovable, including the private portions. It shall take out insurance against ordinary risks, such as fire and theft, on the whole of the immovable, except improvements made by a co-owner to his portion. The amount insured is equal to the replacement cost of the immovable. The syndicate shall also take out third person liability insurance.


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Points to Remember

  • It is vital to properly assess the building’s “replacement cost”: a professional assessment of the cost of rebuilding must therefore be carried out periodically to avoid under-insurance. This cost must include the costs of demolition, taxes, and fees paid to professionals, such as architects and engineers.
  • Under-insurance can lead to significant conflict between co-owners. Furthermore, the syndicate’s administrators could be held liable for a portion of rebuilding costs.
  • It is also advisable to offer coverage to the co-owner in case the syndicate of co-owners has not purchased sufficient coverage. The co-owner will thus avoid being held liable for paying a share of the building’s reconstruction costs.

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1. Marineau v. Syndicat de la copropriété Pimbina – Phase 1 (2014 QCCQ 9625).​

6/2/2015 2:07:15 PM