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"STOP! Whatever you do, don't get caught out by failing to take out the right insurances! There are several types of insurances required and I've put together a short list for you. Always make sure you check your requirements with an insurance company or broker that specialises in strata insurance. And don't forget to follow the highlighted links to get some additional facts."
STRATA INSURANCE REQUIREMENTS
- Must haves...
- Building Cover
- Special conditions for 2-lot schemes
- Insured amount
- Public Liability
- Workers Compensation
- Voluntary Workers insurance
- Contractors insurance
- Office Bearers insurance
- Misappropriation
- Contents insurance
- Mortgage insurance
- Insurance and the GST
Must haves...
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
Everything you need to know, according to the NSW Strata Schemes Management Act 1996, can be found in Part 4 - Insurances: Sections 81 thru 95.
The NSW Strata Schemes Management Regulation 2005 provides 2 references to Insurance and these can be found in Part3 - Insurances: Regulations 11 and 12
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, toilet bowls, sinks, shower screens, cupboards, internal doors, stoves, common air conditioning systems and intercom systems, etc.
For details of what's included in the definition 'building' refer to the NSW Strata Schemes Management Act 1996: Section 81-Building.
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: Section82-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) $10,000,000.
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.
TIP - If you use the above link take special note of the small menu on the right hand side called Also in this Section. This will lead you to other important workers compensation conditions and legislative changes and requirements.
Another Tip - You can also learn about ALL the various working condition laws, regulations and requirements in NSW by using both the upper and lower left side navigational menus on this same page. All 4 sections on the upper menu are important while on the lower menu, pay particular attention to Publications and FAQ.
Specific workers compensation information and requirements can also be obtained from an insurance broker or an insurance company specialising in Strata.
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 the 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
For more details on just how dangerous using uninsured contractors can be have a look at the Ongoing Maintenance and Repairs information page. Specifically look at the "Just image this scenario for a moment..." section.
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.
WARNING - there are quite a few exclusions in this type of policy, one of which is fraud, so please makes sure you know what you are and are not getting
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 (ie 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 (ie 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 Executive Committee PRIOR to taking out a policy so that it's very clear, right from the outset, what's covered by what insurance.
An IMPORTANT TIP - it's no good waiting until something happens only to find out that the insurance you signed up for doesn't quite go far enough leaving you 'out of pocket' if something happens so make sure you know all the details well ahead of time.
Mortgage insurance
The mortgagee of a lot may also require the borrowing owner to take out specific insurance cover as part of the loan. Just be aware that this insurance covers the lender (in case you default on the loan) and not you and that this insurance is mandatory in most cases. Please contact your lender for more details on this cover.
Insurance and the GST
Believe it or not, the GST can have serious implications for a strata scheme's insurance cover in the event of a major or partial loss. CHU, a strata insurance specialist, has an excellent article in the Common Ground newsletter - titled "GST deductions leave Strata Schemes exposed" - that deserves your attention. Click on the SECOND item in the Contents Menu to go straight to the article. It's a tad on the older side but still highlights what can happen. Make sure you know what you need to do for your scheme in relation to this important issue and get some professional advice if needed. Hopefully your scheme will never have to make a claim like this but you just never know....
Another IMPORTANT TIP - For all sorts of strata insurance, it's always best to contact a company that specialises in strata insurances. Like with most things, it'll save you lots of time, money and hassle in the long run to deal with someone who really knows what they're doing.
Yet ANOTHER TIP - Not having the correct insurances or enough cover can prove to be an extremely costly exercise IF anything just happens to go wrong. As the old saying goes: "It's much better to be safe than sorry". So make sure you have the correct insurances AND that there's enough cover.
After all, insurance has a very specific purpose and it's definition says it all....
.....to protect the financial well-being of an individual, company or other entity in the case of unexpected loss
Strata Title Terms and Jargon
If you need to know the meaning of one or more of the common terms mentioned above then have a look at the Strata Terms and Jargon Information page.
DISCLAIMER: All information on this website is of a general nature and is intended as a guide only. Readers should check all information obtained from this website for accuracy from other sources and seek professional legal advice before taking any action based on any information obtained from this website. Information on this website should not be substituted for proper legal advice. The owners of this website will not be held responsible for any action taken as a consequence of same.
EXTERNAL SOURCES: The owners of this website do not make any warranty or representations regarding the information, products, services provided by or qualifications of any external sources listed on this website. Readers should make their own appropriate enquiries regarding accuracy, qualifications, licences, etc. The owners of this website will not be responsible or liable in any way for any representations made by any external sources listed on this website.
IMPORTANT NOTE: This website deals with strata matters in NSW, Australia only. Legislation varies in different states and territories and in other countries. For information pertaining to places outside of NSW, Australia please refer to the appropriate legislation for your region.
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