Paper 9 - Insurance

Division 5.4 of the Unit Titles (Management) Act (starting at S99) deals with the insurance responsibilities of owners corporations.

Owners corporations must:

  • have and maintain public liability cover for accidents on the common property for at least the amount set by regulation (currently) $10 million (S102) and

  • insure and maintain insurance to the greatest possible extent over all buildings for their replacement value, and the incidential costs of replacing them, against:

(a) fire, lightning, tempest, earthquake and explosion;

(b) riot, civil commotion, strikes and labour disturbances;

(c) malicious damage;

(d) bursting, leaking and overflowing of boilers, water tanks, water pipes and associated apparatus;

(e) impact of aircraft (including parts of, and objects falling from, aircraft) and of road vehicles, horses and cattle. (S100).

Section 99 provides that land means the whole area of the unit plan and building on the land includes any improvements and fixtures forming part of the building, including site improvements, consisting entirely of common property; and anything prescribed by regulation as forming part of a building. But building on the land specifically does not include paint, wallpaper and temporary wall, floor and ceiling coverings, fixtures removable by a lessee or sublessee of a unit at the end of a lease, or anything prescribed by regulation as not forming part of a building.

The Act now makes completely clear that the owners corporation is liable for making good damage to any buildings in the units plan (including improvements and fixtures forming part of the building or common property) for certain risks. It also makes clear that if there is a gap between the insurance cover the owners corporation can get and the cost of repairs or reinstatement, the owners corporation bears that cost. That is, the owners corporation pays any ‘excess’.

To make that even clearer, subsection 3 of Section 100 says:

A regulation may make provision in relation to an insurance policy required to be taken out by the owners corporation under this section including for the following:

(a) payment by unit owners of any excess payable under the policy;

(b) combining the policy with other insurance policies;

(c) notification requirements by unit owners in relation to improvements made to units;

(d) the proportion of the premium payable for the policy by particular unit owners by way of a general fund contribution;

(e) valuation of the insured buildings.”

So unless and until a regulation is made that says unit owners are liable to pay some or all of the excess, the owners corporation is liable to meet it.

Any resolution of a general meeting of any owners corporation that purports to make unit owners liable for paying the excess is consequently 'void abinitio', that is, of no effect from the outset.

If your owners corporation attempts to pass such a motion, please point out that it is of no effect and if any member of the owners corporation refuses to pay and the owners corporation seeks to sue them in ACAT or if an owner sues the owners corporation to force it to pay the excess, the owners corporation will surely loose.

If an owners corporation receives money as a result of an insurance claim it must, without delay, apply the insurance money to rebuilding and reinstating the building. (S 103), unless it is getting any necessary approvals and court orders. That is, the owners corporation cannot prevaricate about making repairs.

Owners corporations can exempt themselves from taking out part or all of the required insurance if the replacement value of all common property buildings (or parts of buildings) on the land is less than an amount prescribed by regulation, currently $10,000, or the units plan consists entirely of class B units. In either case the owners corporation can exempt itself only by passing a unanimous resolution at each annual general meeting (S 101). Only small minority of owners corporations are likely to be able to avail themselves of this provision

If required by any owner or another person with an interest in a unit, owners corporations must within 14 days and free of charge provide copies of the current insurance policies, receipts of premiums paid under the current policies and any exemption resolutions ( s 118).

Executive committees must at each annual general meeting give the owners corporation details for each current insurance policy of the insurer, the amount of cover, any recent revaluations, a summary of the cover provisions, the premiums, excesses, the policy expiry dates and any financial or other benefit given, or to be given, by the insurer to any person, for the insurance being taken out. (Sch 2, s 2.3). Each member of the executive committee is liable to 20 penalty units if the executive committee fails to comply with this section.

Individual Owners

Individual owners can take out their own insurance for their own property (ie contents) and can also take out additional insurance on their unit (S 105), although it could be difficult to get further insurance on an already insured unit.

Owners should make all necessary enquiries when taking out their own insurance to ensure that they have minimised gaps between the owners corporation insurance of the building, given the exclusions that are contained in Section 99 and their own contents insurance.

The owners corporation insures “fixtures and fittings” within each unit. This is often described by insurance company employees as “Imagine you could turn your unit upside down. Anything that falls out is not a fixture or fitting; anything that stays in place is a fixture or fitting”. But there are many exceptions. Fitted carpets and other fixed floor coverings are not part of fixtures or fittings. Curtains and other window treatments are not fixtures. Light fittings are often not fixtures or fittings. Some kitchen appliances, like cook tops, that just sit in a space and would fall out under the ‘shake test’, are classed as fixtures or fittings. Consequently who claims under which policy can deliver significantly different results.

Personal insurance taken out by older owners, who have been insured for many years, often has no excess. Owners corporation insurance often has quite large excesses for which the owners corporation is liable.

In this situation owners could discuss the issues with the executive committee in the first instance to achieve the best outcome for all concerned.

Staff of strata managers are not parties to the insurance contract and may not be best placed to offer advice.

Executive Committees

Executive Committees are responsible for renewing insurance coverage each year, therefore strata managers should not renew insurance policies without reference to the Executive Committee. Sections 100 and 102 of the Unit Titles Act 2001 place this responsibility clearly on the owners corporation and therefore the executive committee.

Executive committees are sometimes unaware that their strata manager has a relationship with certain insurance companies and that the strata manager usually receives a commission from the insurance company with which the insurance contract is placed. These commissions are reputed to make up about 20% of strata managers income. Strata managers argue that this income is a payment from the insurer for work they perform for the insurer or enables them to discount their fees to owners corporations. However executive committees must be informed of all payments or commissions in order to perform their duties under Sch 2, s 2.3.

Executive Committees are not bound by any insurance arrangements their manager has entered into with insurance companies or brokers. They are free to use the services of any broker they chose or may decide to seek quotes direct. Strata managers may argue that there will be a financial penalty to the owners corporation if they do that. Owners corporations are free to make their own insurance decisions so long as they abide by the executive committee code of conduct in their decision making (see Schedule 1 Part 1).

One ACT owners corporation decided to offer tenders for the insurance cover it wanted to a number of insurance companies and do its own assessment of the quotes offered. This owners corporation was able to get the coverage it wanted at a competitive price.

ACT law does not require insurance revaluations to be undertaken in any particular time frame. Section 100 and Sch 2, s 2.3 by implication require the Executive Committee to ensure that the owners corporation is revalued for insurance purposes on a regular basis.

All owners should take a look at the JACS Fact Sheets on unit titles at http://www.justice.act.gov.au/review/view/17