Summary
The Strata Company is only responsible for insuring the common property lot, as defined on the Strata Plan.
Owners have a share in both the assets and liabilities of the strata company and a legal responsibility for maintenance, repair and overall management of the common property. Insurance generally covers the costs of damage to the building and common property that occurs suddenly and accidentally.
However, coverage is subject to exclusions. For example, if damage arises from maintenance, then it may fall to the strata company to pick up the costs. Ongoing failure to adequately maintain property can lead to defects that may not be covered under an insurance policy, leaving owners with large, unforeseen exposures in the event of a claim.
It's important to understand that there are critical differences in the requirements and options for Insuring a Strata Scheme when compared with a Survey Strata Scheme.
Insurance in a Strata Scheme
Introduction
In most situations, the Strata Company must be insured to cover the buildings, the common property and any common property contents. Strata Companies must also have legal liability of at least $10million.
As an owner, you are responsible for Insuring the contents within your lot. You should also consider landlords insurance if you are renting out your lot.
This fact sheet provided by Property Lync Brokers, may help guide you on what sort of cover may be appropriate.
Workers Compensation insurance is required by law if the strata company employs anyone. In WA as per the Act, circumstances that deem whether someone is an employee or a sub-contractor can be confusing. The Strata Company may be deemed to be employing a contractor and not realise. The Strata Company will have many people coming onto common property attending to repairs and maintenance work. We always recommend a Strata Company has Workers Compensation Insurance. Depending on what and how an accident happens, the contractor may make a claim under the Strata Company Workers Compensation Insurance. It is at the time of the accident that determines the facts and then who might be responsible. This is why it is important that the strata company has Worker Compensation insurance.
Single-Tier Scheme (no lots above/below another lot)
It is typical for a Single-Tier Scheme to have the Strata Company have a single insurance policy that covers the replacement value for all buildings on lots, as well as the common property (all insurable assets). Building Insurance covers the building, and all fixtures and fittings attached to it. It does not include contents insurance inside the lots.
However, under Section 53B of the Strata Titles Act 1985, the Strata Company for a scheme may determine, by ordinary resolution, that it is a function of the strata company to insure all insurable assets in a scheme, and may at any time, by ordinary resolution, revoke that determination.
What that means, is that the Strata Company has two options. Either the Owners can insure their own lots, in their own names, and the Strata Company insures the Common Property - OR - the Strata Company insures all buildings within Lots on the scheme, in addition to insuring the Common Property.
Multi-Tier Scheme (at least one lot above/below another lot)
The Strata Company in a multi-tier scheme MUST insure all insurable assets of the Scheme to replacement value. Building Insurance covers the building, and all fixtures and fittings attached to it. It does not include contents insurance inside the lots.
There is no option in the Strata Titles Act 1985, to manage the Insurance differently in these Schemes.
Making an Insurance Claim
As an Owner, you make want to make an Insurance Claim if you suffer loss or accidental damage to your lot. If the area is question is covered by the Strata Companies Insurance Policy, then you may be able to make a claim. Your Strata Company insurance policy usually stipulates an excess when claims are made. The Strata Company is responsible for paying this excess from strata funds, unless there is by-law stating otherwise.
When a claim is submitted, the insurance company will make a determination whether to accept the claim, based on the information that has been provided.
Higher excesses can sometimes be imposed on certain claim types - depending on what is detailed on the policy schedule. A common example is claims relating to roof leaks, which can attract a significantly higher excess where a large amount of previous claims exist.
Repairs & Claims
The person responsible for the repairs to the damaged part of the building, is responsible for deciding whether they wish to submit an Insurance Claim. If an owner submits a claim for damage to their lot, then the Strata Company is obliged to lodge the claim, or accept responsibility for the payment of the invoice.
Even if a claim is lodged and/or accepted by the Insurer or the Strata Company, the party responsible for the damaged area is still responsible for arrange the repairs. Unless another party has acknowledged responsibility (e.g. the Insurer may arrange their own repairers, or the Strata Company may claim responsibility for making the repairs) then the original party is still responsible for making the area safe, and arranging suitable repairs.
Insurance in a Survey-Strata Scheme
Summary
The Strata Company is only responsible for insuring the common property lot, as defined on the Survey Strata Plan. The lot owners are responsible for insuring their own lots and anything on them, as defined by the Strata Plan. Therefore, owners must obtain their own insurance policies to cover their buildings, land and legal liability. The Strata Company cannot Insure those lots with Strata Company funds, and should not be responsible in the event that an owner fails to pay their premiums.
Owners may have the option to co-opt into a Community Association Policy with the Strata Company. This is where the Strata Company has an Insurance Policy in the name of the Strata Company for the Common Property Lot, and Owners may take out a policy for their own lots, in their own name, but under the same Insurer as the Strata Company. This would be arranged through the same broker that the Strata Company policy is managed with.
Important Note:
By-laws cannot be made to stipulate that the individual lots insure collectively, as it would be inconsistent with the Strata Titles Act 1985.
Insurance Claims
Any Insurance Claims for damage to a lot would be the responsibility of the owner to complete, submit and follow up. Since the Insurance Policies for each owner is their own name, they would need to contact their Insurer or their Broker direct in order to arrange this.
Any damage to the Common Property would be repaired by the Strata Company, and the Council would consider whether a claim would be appropriate or not.
Duty of Disclosure
What is a Duty of Disclosure?
An owner and member of a Strata Company has a legal responsibility, under Section 21 of the Insurance Contracts Act 1984 (Cth) (the Act) to disclose all relevant information that could affect an insurer’s decision on the insurance cover they can offer.
An insurance policy is a legally binding contract between the insurer and the policyholder. It sets out the terms and conditions under which you agree to pay a premium and how they agree to compensate you for a loss after an unforeseen event.
If there is any new information that arises during the period of insurance which may increase the risk of loss or damage being suffered, this must be disclosed.
The responsibility to disclose information relevant to the insurer’s decision applies before the insurance policy is entered into, and any time the policy is renewed, reinstated, extended, or varied.
So what do I need to Disclose?
In accordance with the Act, a Strata Company should tell the insurer about all relevant matters.
Examples of what to disclose:
- Known defects (including defects reports and registers) or pre-existing damage, including any unrepaired maintenance. This may include (but is not limited to):
- Water leaks through roofs or windows
- Downpipe and drain issues
- Tree root issues
- Balcony issues
- Any planned changes to common property such as to carparks, lifts, pools, fire and security systems.
- A copy of the building or scheme’s claims history.
Consequences of Non-Disclosure
If an owner or Strata Company fails to share all relevant information with the insurer before the insurance policy is entered into, renewed, reinstated, extended or varied then the insurer may choose to reduce the amount they pay out on a claim, or cancel the policy, or both.
Innocent non-Disclosure
Where non-disclosure is innocent in nature then, under Section 54 of the Insurance Contracts Act, the insurer may not necessarily refuse to pay a claim entirely, but they are entitled to reduce their liability by an amount with fairly represents the extent to which they have been prejudiced by the nondisclosure. This can result in the insurer’s liability being reduced to nil. In addition, under Section 60 the insurer has the right to cancel the insurance policy where a Strata Company has failed to comply with their duty of disclosure.
Fraudulent non-Disclosure
If a Strata Company fraudulently fails to comply with their duty – such as where it is aware of information that will be of relevance to an insurer and purposefully elects to not disclose – then the insurer may have a right under Section 28 of the Insurance Contracts Act to treat the insurance policy as never having existed. Where this occurs, the Strata Company may be left exposed and uninsured.
Some other implications in the event of fraudulent non-disclosure include that:
Committee members may not have the benefit of legislative protections against their own personal liability – as they will not be seen to have acted ‘in good faith’; and Protection under any ‘Office Bearers Liability’ insurance policy will also be compromised, owing to policy exclusions for claims arising from dishonest or fraudulent conduct.
If Strata Managers are operating under delegated authority from a Strata Company, the duty of disclosure extends to them also. This means that your Strata Manager may be obligated to disclose information even if the Council do not wish too.
Insurance Valuation
A building insurance valuation is different from a market valuation (how much a person would pay to buy the property). The Strata Titles Act 1985 states that a Strata Company must be insured for the full replacement value in the case of a total loss.
What does a Building Valuation Report Take into Account?
- Clear the site of rubble in the case of a total loss
- Have an architect redesign the complex to original specifications (plus any noted improvements)
- Rebuild the property to the same or like specification i.e. building materials which are no longer produced would be substituted for the current equivalent.
- Professional Fees
- Contingency costs
- Escalation costs
- G.S.T.
Brand New Buildings
It is recommended that even new owners obtain a professional valuation for rebuild purposes as soon as possible. The insurance cover put in place initially by the builder, may not necessarily be reflective of the rebuild cost moving forward when you take all the factors into account.
What do they cost?
You can contact your Strata Manager and request that quotes be sought. Generally speaking, quotes are based on the number of lots. Costs can range from approximately $800 through to several thousand dollars for larger schemes.
How often to carry out a Valuation?
There are no specific recommendations on the frequency that reports should be carried out. However, we have sought advise from Valuers, who recommend that valuations should be carried out at least every 3 years.
Most insurers will offer to increase the Building Sum Insured (BSI) at a suggested rate each year to keep pace with the inflationary costs associated with the building industry, during the years between the valuations. However, this does not take into account all the other variables that affect building costs and materials such as; bush fires, cyclone damage, etc.
For rebuilds, the cost of materials and the price of labour varies, with the industry experiencing large cost increases at times, especially after natural disasters. This is why having periodic valuations is good strategic planning.