NEWSLETTER    ISSUE 10    April 2013

The importance of insurance

The information contained in this newsletter is general information only and should not in any way be taken  to  be  or  relied  on  as  accounting,  financial  or  legal  advice  on  insurance  policies  or  insurance  in general.  If  you  are  considering  or  require  advice  about  an  insurance  policy,  your  insurance  needs  or insurance  in  general  you  should  seek  advice  from  an  insurance  representative,  accountant,  registered f inancial advisor or lawyer in relation to your personal circumstances.

What Insurance is a Strata Scheme Required to Have?

The  minimum  obligations  on the insurance required to  be obtained by a strata  scheme is  set  out in Part  4 of  the Strata Schemes Management  Act 1996  (NSW).

In short, a strata scheme is required to have insurance in respect to the following:

  • Damage  to  the  building.  The  amount  cover  is  required  to  be  at  least  the  value  of  the  building  as  contained   in the last valuation of the building.  A  valuation is required to be obtained every 5 years;
  • Damage to property, death or bodily injury for which the owners corporation could become liable in     damages (commonly referred to  public liability  insurance);
  • An occurrence (event) to which the owners corporation decides by  special resolution  to insure;
  • Damages for which the owners corporation could become liable by reason that, without fee or reward or any expectation of fee or reward, a person acting on behalf of the owners corporation does work in a building or on the common property in the strata scheme (commonly referred to as  voluntary workers   insurance);
  • any occurrence against which the strata scheme is required by law to insure, including any insurance   required to be taken out by the  Workers Compensation  Act 1987  and the Workplace Injury Management   and Workers Compensation  Act 1998. This depends on the activities undertaken by the strata scheme. For example, if the strata schemes     employers workers, then it may need workers compensation insurance;
  • any other insurance required by the Strata Schemes Management Regulations.  At this time, there are no   additional insurances required by the regulations.

In addition  to the compulsory  insurances  set out above,  a strata scheme  may  obtain  insurance  in  respect to the following:

  • damagetoproperty,deathorbodilyinjuryforwhichapersonholdingtheofficeofchairperson, secretary, treasurer or member of the executive committee of the owners corporation could become   liable  in damages because of an act or omission, committed or omitted in good faith, in performing  the   functionsofthatoffice(commonreferredtoasOffice Bearer’s Liability  insurance),
  • misappropriation of money or other property of the owners corporation (common referred to as  Fidelity   Fund  Guarantee)
  • insurance over any other property for which the strata scheme has an insurable interest, for example a   vehicle  purchased on behalf of a strata scheme.

Practical Considerations

It  is important  to remember the  Strata  Schemes Management  Act  1996  (NSW) only provides categories of insurance  that a strata scheme  must or may take it. It says nothing  about  the terms of the insurance  policy  or the exclusions an insurer may impose on the extent of its cover.

Consequently,  it  is  important  to  strata  schemes keep in mind a  number of  issues when making decisions about its insurance cover.

Most importantly you need  to remember  that an insurance  policy  is a contract, ie an agreement  that if certain things happen they will pay on your claim. So this can also mean that certain things won’t be covered, ie a policy is not  a  catch all, and hence when you are comparing policies it  is important to  check a  lot more than just  the price!!!.

Some insurers cover a much wider range of incidents than others, and hence they can offer a lower premium.

For  example,  some insurers  provide cover for  certain  machinery as part of  the cover for  damage to  the building while others require you to pay extra.

It  is important  to  remember  that  the  Strata  Schemes  Management  Act  1996  (NSW)  requires a strata  scheme to have insurance for  the damage to  the building  belonging  to  the scheme  (commonly referred to as common property or common areas).

There is no general requirement for the strata schemes to insure for damage to lot property or personal  property belonging  to a lot owner  or tenant. Further, strata insurance  policies  generally  do not cover damage  to lot property or personal property (contents) unless the strata scheme is legally liable for causing that damage.

Considering  the limitations of strata insurance  policies, lot owners and tenants should always consider taking out their own insurance  in relation to their lot property,  contents or other property in respect to anything which happens in or arising from their lot.

As  always  strata  schemes,  lot  owners  and  tenants  should  seek  accounting,  financial,  insurance  and/ or  legal  advice  in  respect  to  the  appropriate  insurances  for  their specific  needs  and  circumstances, including the amount of cover.

An example of the value of insurance

A girl known to a PSS team member was visiting a friend at their house when some fat caught on fire. The fire was put out, but it was decided to take the pan/fat outside. As the girl opened the door for the person carrying the pan, the woman tripped and the contents flowed down the girls legs incurring serious burns. The payout received as compensation covered the operations and physio she needed as well an amount for pain and suffering she sustained. This all came from the home owner’s insurance policy. Whilst this relates to a house policy, such an incident may occur in a unit, and there are covers available to you which would protect you and provide for the injured party similarly to the one referred to here, however you will need to seek advice from an insurer advising what sort of incidents you are looking to cover.

This is not a one off, there are many stories regarding incidents of injury to tenants or visitors etc to a property. If not insured an accident could leave you, your tenants and/or guests in financial ruin, potentially to someone you care about!

Our up-dated blog

A blog has been posted on our website to assist you define the difference between something you may be able to claim under your scheme’s policy and that which would most likely be deemed maintenance. It is very easy to understand if you can answer one basic question in the affirmative or negative then check your insurance policy, remember it is a contract to cover certain events.