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Insurance Requirements in Strata

Thursday, 29th October 2015

In general terms, an owners corporation is responsible for the following main insurances:

  • The main building and any outbuildings
  • Public liability
  • Workers Compensation
  • Voluntary workers cover

 

 

Building Cover

The Owners Corporation has a duty to cover all buildings in the Strata Scheme under a Damage policy with an approved insurer.  The 'building cover' includes not only the structure but also the common property fixtures and fittings such as carpets in common areas, hot water systems, light fittings, doors,  common air conditioning systems and intercom systems, etc.

Special conditions for 2-lot schemes

This building cover requirement doesn't apply to 2-lot schemes (referred to as small schemes) where the buildings are detached and no building or part of the building in the Strata Scheme is situated outside those lots.  However the 2 owners must decide, by unanimous resolution that the Owners Corporation will not be taking out building insurance. 

Insured amount

In the NSW Strata Schemes Management Act 1996: Section 82-Damage Policy there's a prescribed method detailing what's to be included when calculating the sum insured for the Damage policy.  In simple terms the amount is calculated by using the estimated cost of:

  • Replacement of the building
  • Removal of all debris
  • Professional fees for architects, engineers and other persons whose services are necessary

IMPORTANT - A valuation of the building must be carried out at least once every 5 years and the building insured for the new valuation amount.  This valuation must be carried out by a qualified valuer or quantity surveyor.

Public Liability

The Owners Corporation is required to insure against death or injury to a person or damage to property for which the Owners Corporation could be held responsible.  The minimum cover is currently (in 2008) $10,000,00. 

TIP - Public liability insurance should also be considered by individual lot owners for any special circumstances involving their lot and not covered by the insurance taken out by the Owners Corporation.  There are many war stories of owners being 'caught out' when the unusual or unexpected happens.  So make sure you find out what is and isn't covered under the insurance put in place by the OC and take any appropriate action.

Workers Compensation

Workers Compensation insurance protects employers and injured workers from financial costs when a worker sustains a work-related injury or disease.  So, where Workers Compensation Law and Policy requires the Owners Corporation to take out workers compensation insurance, it must be effected.

Voluntary Workers insurance

The Owners Corporation must insure, with an approved insurer, against any damages that it may become liable for when a person does voluntary work for the Owners Corporation in the building or on the common property.  A voluntary worker is any person who does work without receiving or expecting to receive any fee or reward.

Other Insurances to consider

Contractors insurance

While it's not mandatory for any contractors doing work at a Strata Scheme to have the proper insurances, allowing uninsured contractors onto your scheme to do work is simply asking for trouble.  Now, there'll be no problem if nothing goes wrong, but if something unfortunate does happen and correct insurances are not in place then the Owners Corporation will be held liable.  So, if you want to be totally safe, please:

  • Do NOT use uninsured contractors no matter what the situation
  • Do NOT use 'friends-of-friends' or 'handy' owners to work for the scheme unless they are insured
  • Check and make sure the contractor's insurance is valid AND that the cover is sufficient

Office Bearers insurance

The NSW Strata Schemes Management Act 1996 allows an Owners Corporation to obtain insurance to provide financial protection in the event the executive committee members become legally liable to pay compensation for actual or alleged wrongful acts. In insurance circles, this type of insurance is known as Office Bearer's liability insurance.  

While this insurance is not compulsory, a motion to consider obtaining such cover must be included in the agenda of each Annual General Meeting if such insurance has not been obtained.

Misappropriation

The Owners Corporation also has an option to take out insurance against the fraudulent embezzlement or fraudulent misappropriation of Owners Corporation's money (i.e. funds set aside for management of the scheme) and/or property.  This type of insurance is usually referred to as Fidelity Insurance and is quite different to Office Bearers liability insurance so, again, make sure you get complete details on this type of insurance from your broker or insurer.

Contents insurance

This type of insurance is probably the one most people are familiar with and lot owners should carefully consider taking out contents insurance to ensure their property (i.e. their lot) is protected from damage, fire, theft or loss.

Everything within the lot, which doesn't form part of the building, should be insured under a contents policy.  Items such as furniture and furnishings, floorcoverings and wallcoverings, light fittings, clothes, appliances and equipment, paintings, personal items and so on should all be covered under a contents policy.

Often there's much confusion as to whether items are covered under the Owners Corporation's insurance or whether they're covered under the owner's contents policy.  Therefore owners need to discuss these issues with both the insurer (or broker) and the executibe committee prior to taking out a policy so that it's very clear, right from the outset, what's covered by what insurance.  

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