Oct. 2018
By Marco Lagacé
Can the insurer of a condominium association seek recourse against a co-owner and the co-owner's insurer after indemnifying its insured for damages to the building's common areas caused by the co-owner? The Superior Court of Québec addressed the issue in its recent ruling in Compagnie d'assurance Missisquoi v. Aviva Canada inc., 2018 QCCS 2760.
Facts
In this particular case, insurer Missisquoi (Missisquoi), which insured the condominium association, indemnified its insured for the damages caused when one of the building's co-owners changed his water filterer.
After paying out the compensation, Missisquoi turned to Aviva Canada inc. (Aviva), which insured the co-owner who was at fault, to seek the reimbursement of the paid sums.
Ruling
First, it is important to note that section 1073 of the Civil Code of Québec expressly recognizes that a co-owners' syndicate has an insurable interest in the whole immovable and must take out insurance against ordinary risks. This insurance is paid out of the common expenses covered by the co-owners.
In addition, broadly speaking, when an incident occurs, the insurer may resort to legal subrogation when the damage is caused by a third party. By legal subrogation, the insurer may recover the sums paid to its insured from the party that is responsible for the incident. It is possible to implicitly and explicitly restrict this right in the declaration of co-ownership.
- Analogy with the principles established for commercial leases
Following an analysis of the declaration of co-ownership, which includes the act constituting the co-ownership, by-laws and description of the fractions, the Court concluded that the condominium association committed to insuring the building and private portions and therefore waived prosecution against co-owners in the event of an incident, even an incident caused by a co-owner's own fault.
Furthermore, the co-owners must be considered as the beneficiaries of the insurance taken out by the condominium association since they pay for the costs. This is an analogous application of similar principles set out by the Supreme Court with regard to commercial leases.
- Analogy with the principles established for builder's risk insurance
In a builder's risk insurance policy, depending on the circumstances, the general contractor has an insurable interest in the subcontractors' property. The courts have consistently ruled that subcontractors are the unnamed insureds of the contractor's policy, subject to certain conditions. The contractor's insurer therefore cannot take action against them.
By analogy, section 2481 of the Civil Code of Québec stipulates that co-owners have an insurable interest in the private and common areas as partial owners. Without being identical, the insurable interests of the co-owners and condominium association remain overlapping and interconnected.
The court concluded that the co-owners had all the characteristics to be considered as the policy's unnamed insureds, in such a way that the subrogation cannot be allowed to authorize the condominium association's insurer to take legal action against them.
Key takeaways
Concerning insurance, it is important to conduct an extensive study of the documents and effectively assess the relationships between all the parties involved. This is especially true when the parties' interests are different but still inextricably linked.
Do not hesitate to contact an expert on our insurance law team for counsel and assistance in assessing your case.