How to navigate strata insurance cladding exclusions

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How to navigate strata insurance cladding exclusions

As property owners bear the burden of audits and rectification costs caused by building defects and combustible cladding, they’re also facing insurance obstacles

While some insurers have refused to cover buildings with defective cladding, others increase premiums or have applied strata insurance cladding exclusions to policy coverage. Strata insurance cladding exclusions

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We spoke to Steven Tchepak, an insurance expert from Australian underwriting agency CHU, about the common insurance exclusions and how owners corporations can navigate them. He recommended that those affected should do the following:

  1. Disclose the presence of problematic cladding
  2. Find an insurer who is willing to cover your building
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1. Disclose the presence of problematic cladding

Given the publicity cladding has received, particularly since the devastating Grenfell Tower tragedy in 2017, the presence of cladding on a building can be considered a material fact that an owners corporation needs to disclose to a strata insurance company, which can lead to strata insurance cladding exclusions.

“When it comes to cladding, some insurers are willing to offer terms on all types of cladding. You have insurers prepared to offer insurance for buildings with cladding, but they may apply strata insurance cladding exclusions restricting policy cover. Other insurers may not be willing to offer terms for buildings that have any cladding whatsoever,” explained Mr Tchepak.

There are many different types of cladding with varying degrees of combustibility or flammability. While owners corporations should be aware of policies with exclusions and endorsements that exclude cladding from being covered, Australian law does offer some protection for owners.

“Strata insurance is compulsory in Australia and needs to cover the building for full replacement value. Therefore, there’s an argument that a strata insurance policy that specifically excludes parts of the building such as cladding could put them at risk of not meeting legislative requirements.”

Thanks to this, there are still effective insurance policies for strata properties on the market.

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2. Find an insurer who is willing to cover your building

“As an industry leader that’s been in this space for more than 40 years, CHU look to support the strata industry by offering insurance solutions wherever possible. If all strata insurance companies pulled out of the market and didn’t offer cover for buildings with cladding, you’d have the potential for a lot of uninsured buildings,” noted Mr Tchepak.

Mr Tchepak offered his sympathy towards owners who find themselves with cladding removal expenses.

“It’s a terrible position for unsuspecting owners to be in, having bought into their dream apartment and then being hit with the news their building has defective cladding and that they have to fund it. We would certainly support reform and legislative action across the country, with action similar to what the Victorian government has committed to being a step in the right direction.”

Following the Victorian Government’s $600 investment into cladding rectification, the New South Wales Government announced a $1 billion scheme to help owners fund their cladding rectification. A similar scheme could soon commence in Queensland.

For those entering the strata property market as apartment buyers, we recommend exercising due diligence and conducting a search of the building’s books and records to help you get informed about your product.

If the building does have cladding, discuss follow-up actions with your owners corporation and strata manager, and review your insurance policy with special focus on strata insurance cladding exclusions.

Important note icon

Important note
This article is based on information from CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) which acts under a binding authority as agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). Terms, conditions, limits and exclusions apply to the products referred to above. Any advice provided is general advice only and has been prepared without taking into account your objectives, financial situation or needs. Before making a decision to acquire any product(s) or to continue to hold any product we recommend that you consider whether it is appropriate for your circumstances and read the relevant Product Disclosure Statement which can be viewed on this website or obtained by contacting CHU directly. CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) acts under a binding authority as agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). CommunitySure available through our brokerage partner, BCB (add BCB ABN and AFSL). Steadfast Group Limited (ABN 98 073 659 677) (‘SGL’) has a shareholding in CHU Underwriting Agencies Pty Ltd and BCB. *If you have a CHU Contents Insurance policy and your strata property is insured with CommunitySure and you and the body corporate / owners corporation make a valid claim for the same event. CHU Contents Insurance standard excess is $500. The value of your claim must exceed the amount of your excess. Last updated in March 2021.

Having set up the very first strata scheme in Australia back in 1948, we’ve come a long way in our knowledge and experience across a variety of property types. Whether you are new to strata management or an active committee member, we have developed an extensive library of resources to assist you. Click here to download our FREE Community Living guide on committee management. For a consultation to review your current by-laws with the Kemp Peterson team, click here. To find out more about the services we offer, click here for a free strata assessment.

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