Condo corporations are legally required to maintain property insurance and various types of liability insurance. In a hard insurance market, with increasing premiums, deductibles and renewal denials, many condo corporations are switching insurance providers.

There are many reasons why switching providers is in the best interests of the condo, but there may be hidden risks. Unbeknownst to many policyholders, changing insurers can create a gap in coverage that can expose the corporation to significant financial consequences.

Many condo corporations hold “claims made” insurance policies. Generally, claims made policies require that the claim be made and reported to the insurer within the policy term. Claims made policies also generally exclude coverage for any claim arising from an insurable event that occurred prior to the policy term. This type of provision is often referred to as a “prior act exclusion” and the language and scope of the exclusion can vary from policy to policy.

This could mean that if a condo corporation switches to a new insurance provider, even where they stay with the same insurance broker, the condo may not be covered under its prior policy for claims made after the expiry of the policy term. This can be the case even if the insurable event giving rise to the claim occurred during the policy term.

In addition to not having a valid claim under the old policy, the condo may not be covered under its new policy for any claims arising from insurable events that occurred during the prior policy term because of a prior act exclusion clause in the new policy. This can create a gap in coverage that no one realized or intended. The financial consequences of this gap in coverage could be catastrophic for a condo corporation.

While gaps in insurance coverage can leave a condo corporation financially vulnerable, here are various strategies that can be used to identify and mitigate gaps in coverage:

Be proactive

Carefully review the expiring policy and proposed new policy to identify whether there is a significant change in coverage or in the insurance provider. Many condos may not realize that they are changing insurance providers, especially if they are staying with the same insurance broker. Once you have reviewed the policies, talk to your broker about any significant changes, potential gaps in coverage, and the options available to mitigate these risks;

Purchase additional coverage

Explore purchasing an extended reporting period from the expiring policy provider. This extends coverage to future claims made within the extended period if the claims are based on insurable events that occurred during the prior policy term;

Seek legal advice

Discuss with legal counsel whether there are any potential “wrongful acts” that could give rise to a claim and consider submitting a notice of circumstance to the expiring policy provider. This is a complex process and the scope and possible consequences of the notice must be carefully considered; and

Explore potential changes to policy terms

You may want to speak with your insurance broker to see if there is an opportunity to negotiate policy terms with the new provider. Unfortunately, this may not be possible in a hard insurance market when options are limited. In a more favourable market, you may be able to narrow the scope of prior acts exclusions in the new policy or include a “discovery clause” in the new policy to provide coverage for events that occur during the policy term but have not resulted in a claim by the expiration of the policy.

Every condo must have insurance, but having a policy in place is only one part of the equation. Every insurance policy has exclusions, which are as important to understand as what is covered. Be sure to work with an experienced insurance broker who can clearly explain both what is covered by your insurance policy and what is not. By knowing what exclusions apply and how policies work, condos can take steps to mitigate their risks and avoid any gaps in coverage.

Kate (Letchford) Schoffer is a lawyer with Cohen Highley LLP in London. Cohen Highley LLP has offices in London, Kitchener, Chatham, Sarnia, Stratford, and Strathroy. Kate provides risk management and regulatory compliance advice to condominium corporations, unit owners, and property management companies.