Here is part 2 of the Q&A from the Capitol Connect Webinar: Body Corporate Maintenance Responsibility where our guest speakers — Craig Stanley of CHU and James Nickless of Chambers Russell Lawyers answered the top 5 legal strata insurance and insurance industry questions.
You can watch this recording of the Capitol Connect Webinar Series: A Guide to Body Corporate Insurance and Industry Update from June 22, 2022.
5 Questions about Legal Strata Insurance
James Nickless, a partner of Chambers Russell Lawyers shed a light on the top 5 legal strata insurance questions from owners.
1st Question: If maintenance has been neglected by the body corporate, what action should owners take to ensure that the maintenance work is completed and can an insurer, therefore, decline an insurance claim if the body corporate continued to neglect maintenance and a second event happened?
Answer:
Owners should ensure that the maintenance issues are properly identified in a common property condition report (dilapidation report) and then have professional scopes of work prepared for the items of work needed to be undertaken. Depending upon the extent and costs of the works, there may be the need to adjust the sinking fund budget to ensure the Body Corporate can afford the works and also approve the expenditure and the engagement of the contractors at a committee or general meeting (based upon committee spending limits and the value of the works). An insurer can deny all or part of a claim if the damage has been caused or contributed to by a lack of maintenance by the Body Corporate (particularly when the maintenance issues are known to the Body Corporate).
2nd Question: If an owner sustained damages from the body corporate lack of maintenance, what can they seek in damages?
Answer:
The Body Corporate has a duty to maintain the common property. Lot owners who suffer damage as a result of a failure by the Body Corporate to fulfil this duty can sue the Body Corporate for those damages, including the costs of repair of any property damage and any other economic loss suffered, such as loss of rent or the costs of temporary accommodation while repairs are being undertaken. Lot owners will require credible evidence that the damage was caused by a lack of maintenance and it would also be advisable to ensure that Body Corporate completes the maintenance work to prevent future damage from occurring.
3rd Question: Who is responsible for damages/insurance when the leak originates from another lot and what rights do you have to seek enforcement?
Answer:
If it can be proven by credible (preferably independent expert) evidence that damage has resulted from a leak originating from another lot, the owner of the lot from which the leak originated is likely responsible. There are dispute resolution processes such as conciliation and adjudication under the Body Corporate and Community Management Act (BCCMA) which entitle owners to bring a dispute against another owner. Some damages claims may need to be progressed via QCAT or the courts. It is always best to start by attempting to resolve the dispute with your neighbour (self-resolution) and this is a pre-requisite for many of the formal dispute resolution processes.
4th Question: A lot owner has installed a portable spa on a rooftop for exclusive use which is for passive use only, without asking permission to do so. It is likely not within council legislative requirements for portable spas, there are also concerns about possible compromise to the building. As far as I know, the insurance company has not been advised of the existence of the spa. What are the insurance implications of this situation?
Answer:
Exclusive use of the common property is still common property and therefore improvements to that part of the common property will still require authorisation by the Body Corporate (if the value of the improvement is greater than $3,000). Additionally, anything which a lot owner does that causes or contributes to damage to the Common Property will be liable to the Body Corporate for that damage. One of the usual conditions of any Body Corporate approval to make any improvement to the Common Property is to ensure all necessary local authority approvals are obtained and that the works are carried out by a licenced, insured contractor.
5th Question: Can Body Corporate Committee members be personally held responsible for decisions affecting Residents or the Building? If so, is there insurance for this? Also, if volunteers are helping the caretaker with his duties, are they covered under the Body Corporates insurance if injured or would it need to be covered by the Caretaker and his insurance?
Answer:
Yes, committee members can be personally liable, but only if they have acted negligently or “not in good faith”. The Body Corporate can (and should) obtain office bearer’s insurance to cover this risk. Whether volunteers are covered under specific policies will depend upon the particular policy wording. However, there are a lot of reasons why having a volunteer assist the Caretaker in the performance of the Caretaker’s duties could be problematic. That situation should be carefully considered and any decisions made around it properly documented.
5 Questions about the Insurance Industry Update
A Strata Business Development Manager for CHU QLD and NT, Craig Stanley, provided answers on strata in the insurance industry.
1st Question: What insurance should owners obtain to cover their individual units and what items should they ensure are included? Note: Owners included in their queries issues with dealing with insurance companies that don’t understand body corporate which creates confusion for the owners.
Answer:
There needs to be a Body Corporate Policy in place to cover Insured Property (Building and Common Contents) for Damage as well as Liability for the Body Corporate to cover them if they become legally responsible for personal injury or property damage in connection with the ownership of the common areas and/or insured property.
Lot Owners who rent out their property to a tenant require a Landlord Policy. Landlords Insurance for Strata is tax-deductible insurance that protects owners against loss or damage to their investment property
Owner Occupiers and Renters require a Contents Policy. Contents Insurance is needed to protect owners’ and tenants’ personal belongings such as clothing, phones, jewellery, furniture, TV, Laptops, Internal Carpets, blinds and electrical appliances etc. It should also cover legal liability for injury to or death of another person and loss of or damage to another person’s property.
Please see the below videos which explains each of the policies:
2nd Question: Insurances have increased a lot, please provide information on why the increase, and are there any suggestions for the body corporate to assist with reducing and ensuring limited increases on building insurance?
Answer:
Strata premiums are generally increasing market-wide and we acknowledge the pressure it can put on budgets. We want to help you understand the potential reasons for these premium increases, which may be due to one or more of the following:
- The scale and severity of natural weather events have impacted the number of claims made to insurers
- The increase in the annual inflation rate in Australia which is now exceeding 5% affects most things you purchase including the price you pay for your insurance
- The increase in the average cost of claims exceeded the Consumer Price Index (CPI) due to a significant shortage of materials and increased labour costs due to COVID-related labour shortages, increased demand for trades and increased catastrophe claims
- Forecasted increases in reinsurance premiums both globally and in Australia form part of your premium.
- An increase in your building sum insured or a change in your insurance
To assist in keeping premiums down a Body Corporate is able to select a higher deductible and this will have some impact on the premium. It is also recommended that the Body Corporate take a proactive approach to Risk Management. If the Body corporate is proactive to minimize its exposures then this should mean fewer claims which will reduce future loadings to premiums, increases in deductibles or even acceptability by the Insurer. An ounce of prevention is better than a pound of cure.
3rd Question: What is the process for approving an insurance claim, and at what point is an assessor engaged by CHU? And while the claim is being processed who is responsible to make safe?
Answer:
There is no hard and fast rule when a loss adjuster will be appointed.
Generally, a loss adjuster will be appointed to claim when they can add value eg: major loss, complex, multiple units damaged etc.
In regards to who is responsible for making safe, if the claim is under consideration the cost to make safe will be on the insured until such time that the claim is accepted. Once the claim has been accepted cost for make safe will be reimbursed to the BC.
4th Question: What happens if my contents are damaged from a water leak, who is responsible for the resulting damage including my contents? And does the building insurance cover accidental damage?
Answer:
The CHU Strata Insurance policy does cover Accidental Damage to the Buildings and the Common Area Contents if selected. If the Lot Owners Contents (eg. Carpets) were damaged then this would fall under the Landlords Policy if it were rented or a Contents Policy if it were owner-occupied.
5th Question: What happens if my contents are damaged from a water leak, who is responsible for the resulting damage including my contents? And does the building insurance cover accidental damage?
Answer:
You would need to refer to the Underwriter that Insures the policy.
For CHU I draw your attention to page 20 of the Residential Strata Insurance Plan PDS QM562-0122
Exclusions
We will not pay for Damage caused by or arising directly or indirectly from:
f. vibration or from the removal or weakening of or interference with the support of land or buildings or any other property, Erosion or Earth Movement. However, we will pay if the Damage is due to:
i. earthquake or seismological disturbance, Tsunami, explosion, physical impact by aircraft;
ii. bursting, leaking or overflowing of water tanks, pipes, drains, gutters or other water or liquid-carrying apparatus;
We suggest saving or bookmarking this link: https://www.capitolbca.com.au/resource-centre/maintenance/ as a reference for maintenance issues or concerns and if you have any queries, please visit our people to contact your Community Relationship Manager.
Most Asked Questions on Capitol Connect Webinar: Body Corporate Maintenance Responsibilities (Part 1)