Sectional Title - Body Corporate Insurance (Q&A's)

An intersting discussion from Paddocks Club you may find useful.

Member Question:

Good Day, We have a sectional title complex near the Vaal river that has problems with their Insurance.

The Insurance notified them that they will no longer cover them, because of the units being close to the river and it is becoming a risk for flooding, fires etc.

The Trustees want to know if the Insurance can refuse to insure them as they where at 11 Insurance companies and all of them are refusing. 

Mike Addison's Reply (Insurance Broker):

Hi Theo, We attended an insurance training event some ten days ago and were advised by one of the keynote speakers that this was to become an international trend. The international market (reinsurance) will soon no longer support any building risks alongside rivers, dams etc. especially if downstream from dams. The recent Libyan dam disaster has seemingly spooked the market. There is a concern about aging concrete in dam structures, many having being built around 70 years ago. What you say now dovetails with this. To answer your question more directly, yes, insurers are certainly not forced to accept the risk. In fact, most insurance contracts work on the basis that each party (insured and insurer) can give 30 days’ notice to cancel. There are many schemes who cannot get cover for other reasons by the way, mostly due to high claims ratio or poor maintenance. My suggestion is that your broker give all attempts to insure in writing (including records of “decline to quote”) and that you re-try every six months or so, definitely try annually at least.

Member Reply:

Good day Mike, Thank you for your reply herein. This is very concerning as this is a sectional title complex and the current insurer gave the owners notice from the 1st of December that they will not be covered.

The broker informed the owners that the owners must insure their own units individually. The units are all also tach roofs which are very concerning as this is high risk.

According to the STSM Act the insurance for a sectional title must be combined at one insurance company.

What can the owners do?

Mike's Reply:

I was telling my staff yesterday, that some 17 or 18 years ago, Prof Paddock taught me that you cannot deal with a unit individually. Or number “a unit” in its true sense by definition. It is so true here. An owner only owns his or her section which means that he or she only owns that core within the median lines. the outer skin, roof etc. is owned collectively by all with their collective insurable interests therein. A section may be insured (Section 14 STSMA), if an insurer is willing to unscramble that egg. In other words, insure half a wall for example. I could write an epistle on this subject. To answer your question “What can owners do?” is the right question. 1) I would ask the broker concerned for provide written advice about what cannot be done (list of declines etc.) in writing and what he could perhaps do. 2) Advise individual owners to attempt to insure their sections individually (per Section 14). 3) Ask the broker to seek other options like a very basic policy with perhaps flooding excluded but all other risks remaining. The fact that you have a thatch risk as well, certainly does not help.

Graham's Reply:

Thank you Mike. My contribution, Theo, is to agree with Mike and confirm that the STSMA’s most compelling insurance requirement is for fire damage insurance  cover. That is the requirement embedded in the Act itself. So, if you the BC must do everything it may need to do in order to get fire insurance cover for all buildings in the scheme.

The other types of insurance required under the Regulations are, of course, very important. But as Mike says, if you can’t get cover for flooding, at least get cover for all other mandatory risks AND then, on a regular basis in the future, review the issue with Mike or another broker to keep trying to can get the full suite of cover.

Mike's Reply:

Agree 100%… as the sage professor once said: “at the very least, a bare-bones policy”

Member's Reply:

Good day, thank you for your reply. The main concern is fire risk as all the units are thatch roofs. The owners decided to obtain their own individual insurance on their units as they will not be covered from the 1st of December.

It seems that the main reason is the fire risk due to the thatch roofs.

Are there anything in the act that will provide the owners with backing to proceed with their own individual insurance, as this seems to be their only option?

Kind regards

Graham's Reply:

No Theo. The Act is clear that a body corporate must take out fire insurance on all buildings to full replacement value.

If the BC fails to take out fire insurance as required by law, it can be held liable for any consequent loss suffered by an owner.

Courtesy: Paddocks Press

Graham Paddock is a specialist community schemes attorney, notary and conveyancer. He has been advising clients and teaching students for over 40 years, and was an adjunct professor at UCT for 10 years.

Article reference: Paddocks Press: Volume 18, Issue 26.

Web Link: https://www.paddocks.co.za/paddocks-press-newsletter/paddocks-press-insurance-qa/

This article is published under the Creative Commons Attribution license.