09 Feb Insurance
Does an owners corporation take out insurance?
An owners corporation is required to effect insurance for:
- reinstatement or replacement of common property;
- public liability cover.
The reinstatement insurance must be sufficient to rebuild or replace any damaged common property. The extent of common property is determined by the plan of subdivision and may include driveways, fences, laundries, foyers, letterboxes and other improvements. The cover held must be for the full amount to replace, repair or rebuild the property to a condition substantially the same but not better than when new. It is necessary to include an allowance for costs for removal of debris, architectural and other reasonable expenses associated with rebuilding damaged property.
Public liability cover operates where an owners corporation is required to pay compensation for injury, death or illness or damage arising from an occurrence on or in connection with the common property. The minimum cover is for claims of $20 million in any one year. An owners corporation may elect to have greater public liability cover if it wishes.
Is the owners corporation required to insure all buildings?
If a building on a plan of subdivision is located above or below common property, a reserve or a lot, the owners corporation is required to effect reinstatement insurance for all buildings affected by the owners corporation. This insurance is required to cover the full value of reinstatement of the buildings. Most buildings affect owners corporations are required to take out building insurance.
How is the appropriate level of cover determined?
As there is an obligation to insure for the full value of reinstatement, it is necessary to determine the required level of cover. A valuer or quantity surveyor is engaged by the owners corporation to provide a valuation of the building costs. It is not the market value that may fluctuate from time to time. An owners corporation is required to have a valuation of buildings and it is required to insure at least every five (5) years.
Can an owners corporation insure for less than the full value?
Insurance for reinstatement affected by an owners corporation must be for the full value of the lot. For this reason, a valuation determining the appropriate level of cover to minimise exposing the owners corporation to the risk of underinsurance is undertaken.
How is the premium paid?
The premium is usually part of the annual fees and is included in the periodic levies.
Who pays any excess?
An excess is an amount the insurer is not required to pay under the policy and this amount is borne by the insured party.
The owners corporation in the first instance may be liable for any excess applicable to a claim. An owner may be levied for excess if:
- the claim arises from a wilful, culpable or negligent act caused by a lot owner, lessee or guest;
- damage to common property caused by an owner or lessee where the damage is not covered by insurance held by the owners corporation or the cost of the damage is less than the excess payable; or
- the excess relates solely to the owner’s lot.
Is any other insurance required?
The insurance held by an owners corporation does not cover owners chattels and any temporary floor, wall or ceiling coverings which include carpets and floating floors within lots.
Owners should have contents cover for their chattels and that cover should include public liability for personal injury within the lot. For a tenanted lot, an owner should have landlord’s contents insurance to cover items such as drapes and carpets located within the lot which are not part of the building. Owners should advise tenants to have cover for their contents.
Owners of commercial lots should establish which chattels and fittings are owned by the landlord but are not covered by the owners corporation insurance such as carpet.
If tenants are permitted to install fixtures, fittings or chattels, there should be a clear agreement as to the responsibility for insurance. This should be a written agreement between the landlord and tenant to avoid a possible later dispute.
It is usual the contents policies include public liability cover for any incident giving rise to liability within the lot. Any person taking out a contents policy should ensure this cover is in place. The level of cover is at the election of the insured. A suitably qualified broker or insurer should be able to provide advice on the levels of cover required.