Insurance
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Owners Corporations Responsibilities
Division 5.4 of the Unit Titles (Management) Act (Act) deals with the insurance responsibilities of Owners Corporations (OC's).
These are
The OC must insure and keep insured all the buildings and fixtures for the following risks:
fire, lightning, tempest, earthquake and explosion
riot, civil commotion, strikes and labour disturbances
malicious damage
bursting, leaking and overflowing of boilers, water tanks, water pipes and associated apparatus
impact of aircraft (including parts of, and objects falling from, aircraft) and of road vehicles, horses and cattle
the costs incidental to the reinstatement or replacement of the insured building, including removing debris and architects and other professional fees and
anything prescribed by regulation (S100)
The OC insurance does not include paint, wallpaper and temporary wall, floor and ceiling coverings or fixtures removable by a lessee or sublessee of a unit at the end of a lease. (S100)
The OC is responsible to lodge insurance claims and pay any excess. (S100A)
Some exemptions from the requirement to take out insurance apply. See later in this article. (S101)
The OC must take out and maintain public liability insurance for $10 million for death, injury or illness of anyone and loss of, or damage to, the property of anyone happening in relation to the common property. (S102)
The OC must apply all money received from insurers without delay to undertaking repairs.
The OC can take out further insurances. (S104)
If required by any owner or another person with an interest in a unit, OC's 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).
All of this means that the OC is the party that is insured not the individual owner.
Executive Committees Responsibilities
EC's are responsible for renewing insurance coverage each year, therefore managers should not renew insurance policies without reference to the EC. Sections 100 and 102 of the Unit Titles Act 2001 place this responsibility clearly on the owners corporation and therefore the EC.
EC's are sometimes unaware that their manager has a relationship with certain insurance companies or that the manager usually receives a commission from the insurance company with which the insurance contract is placed. These commissions are reputed to make up about 20-25% of manager companies income. 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 OC's. However, EC's must be informed of all payments or commissions in order to perform their duties under Sch 2, s 2.3 (h).
EC's 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 choose and may decide to seek quotes direct. Managers may argue that there will be a financial penalty to the OC if they do that. OC's are free to make their own insurance decisions so long as they abide by the EC code of conduct in their decision making (see Schedule 1 Part 1).
Executive Committees (EC's) must at each Annual General Meeting (AGM) give the OC details for each current insurance policy, 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 EC is liable to 20 penalty units (currently 20 times $160) if the EC fails to comply with this section.
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 EC to ensure that the OC is revalued for insurance purposes on a regular basis. However, a legislative requirement would assist OCs and managers.
Individual Owners Responsibilities
Individual owners should 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.
The OC insures “fixtures and fittings” within each unit. ECs often misunderstand that the OC insurance extends into individual property and seek to deny or understate the extent of the OC insurance.
Fixtures and fittings are 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, owners should make all necessary enquiries when taking out their own insurance to minimise gaps between the OC's insurance of the building, fixtures and fittings and their own contents insurance.
Owners should also provide information to the EC and the manager about their additions to the fixtures and fittings when they renovate to ensure that in the event of major destruction they are appropriately compensated.
Staff of managers are not parties to the insurance contract and may not be best placed to offer advice.
Exemption from insurance
OCN is often asked if it is possible for OCs, especially small ones and dual occupancies, to exempt themselves from owners corporation insurance policies.
There are two different exemptions from taking out combined insurance. The first is the value of the common property being less than the amount prescribed by regulation that is currently less than $10,000.
101 Exemption from building insurance requirements
(1) If the replacement value of all common property buildings (or parts of buildings) on the land is less than an amount prescribed by regulation, the owners corporation may, by unanimous resolution, exempt itself from the requirement to take out building insurance under section 100 (1) for any risk stated in the exemption resolution.
(3) An exemption resolution under this section has effect from the date of the annual general meeting when it is passed until the date of the next annual general meeting.
If the OC has a common water meter, a power board a reasonably large area of common property including driveways, especially if utilities lines run under that driveway, it is unlikely that owners corporation meets the test in S101(1).
Some of the very new ‘post Fluffy’ dual occupancies are specifically designed with separate water and power lines and a very small area of common property with no utility lines under it, so they can meet the $10,000 fairly easily.
But the resolution has to be made and minuted every year without fail. The decision to insure separately is not set and forget.
The second exemption is that the buildings are Class B.
101 Exemption from building insurance requirements
(2) An owners corporation for a units plan containing only class B units may, by unanimous resolution, exempt itself from the requirement to take out building insurance for any risk stated in the exemption resolution for all buildings (or parts of buildings) that are on the class B units.
(3) An exemption resolution under this section has effect from the date of the annual general meeting when it is passed until the date of the next annual general meeting.
First this is a discretionary provision. The owners corporation may choose to investigate this option but there is no compulsion to do so and good reasons to be wary of doing so.
So the process would be
The OC holds a general meeting every year
at that meeting all owners must vote and none can vote against to exempt themselves from some or all of the insurance requirements in S100
all owners agree to take out their own insurance on their buildings and public liability for their individual title land and to provide proof to one another that they are doing so
the OC takes out and renew common property public liability insurance and
the OC has to pass the exemption resolution every Annual General Meeting.
So again this is not a set and forget decision.
Insurers may baulk at an owners corporation trying to take out common property public liability insurance cover without building cover.
Each owner will need proof of the AGM resolution at each insurance renewal for personal property and common property public liability. So it would be best to provide each owner with a copy of the minutes stamped with the owners corporation stamp each year to facilitate taking out individual buildings and public liability insurance.
Any savings could well be overtaken by the administrative complexities involved and the inherent risks of inconsistencies and gaps between various policies and some owners forgetting to renew policies.
Insurance excess
Who pays the excess has been a very vexed area in the ACT for decades. S100A now makes completely clear that the OC is liable for paying the excess and for lodging insurance claims, reinforcing that it is the OC not the individual owners who are party to the insurance contract.
100A Lodgement of insurance claims
(1) This section applies to an insurance claim made in relation to a building on the land in relation to a units plan.
(2) The responsible entity for the units plan must—
(a) lodge the insurance claim; and
(b) pay any excess payable in relation to the insurance claim.
(3) In this section:
responsible entity—see section 100 (5).
Any resolution of a general meeting or rule made by any OC after 1 November 2020 that purports to make unit owners liable for paying the excess is 'void ab initio', that is, of no effect from the outset. You cannot exempt yourself from the law by a contract or agreement.
Any resolution made before 1 November 2020 that makes unit owners liable for paying the excess is also void. Before the introduction of S100A, subsection 3 of Section 100 provided:
(3) A regulation may make provision in relation to an insurance policy under this section including for the following:
(a) payment by unit owners of any excess payable under the policy;
S100(3)(a) is repealed and offers no basis for an OC trying to exempt itself from the provisions of the UT(M)A.
Lodging a Claim
Often ECs try to reduce the OCs exposure to paying excesses or to insurance claims history by prevaricating or outright refusing to lodge insurance claims. Owners can make an application to ACAT seeking an order that the OC fulfills its obligations under S100A.
Sometimes the EC has a view that the owner is responsible for the damage. If that is the case the EC should lodge the claim, get the repairs made and in the process get advice on whether the damage was the result of a wilful or negligent act. Then the EC has grounds to invoke S31 to claim from the owner the ECs costs.
31 Recovery of expenditure resulting from member or unit occupier’s fault
(1) This section applies if an owners corporation for a units plan has in carrying out its functions incurred an expense, or carried out work, that is necessary because of—
(a) a wilful or negligent act or omission of a member of the corporation, or an occupier of the member’s unit; or
(b) a breach of its rules by a member of the corporation, or an occupier of the member’s unit.
(2) The amount spent or the cost of the work is recoverable by the owners corporation from the member as a debt.
(3) If the owners corporation recovers an amount under subsection (2) from a member for an act, omission or breach of an occupier of the member’s unit, the member may recover the amount from the occupier as a debt.
(4) In this section:
expense, includes a reasonable legal expense reasonably incurred, including a legal expense relating to a proceeding in the ACAT.
work, carried out by an owners corporation, means maintenance or anything else the corporation is authorised under this Act to do.
If a tenant or occupier wilfully or negligently caused the damage, the owner can then claim their costs from the tenant or occupier.
ECs would be well advised to establish a special purpose fund by special resolution into which the OC pays several times the amount of the insurance excess and tops up as necessary. That way the EC is not caught short for the amount of the excess late in any financial year.
Claimable repairs costing less than the insurance excess
The OC is the party to the insurance contract not the individual owner. Therefore if damage occurs that would be covered by the insurance policy if the costs of repair reached the threshold (ie the cost is under the excess) the OC is liable for the repair not the individual owner. This point is often misunderstood.
Even though the damage event is under the excess, or only a few dollars over the excess, it is still an insurable event under the OC’s insurance policy. Therefore, the OC is liable to cover the cost of the damage.
If ECs better understood this point the tendency towards OCs taking out high excess policies would abate.