Owners corporation insurance: what is and isn’t covered?

Owners corporation insurance: what is and isn’t covered?

One of the many functions of an owners corporation is taking out and paying premiums on insurance for common property. In Victoria, owners corporations are required to insure all buildings on the common property.

A building is defined as:

• A structure and part of a building or structure
• Walls, out-buildings, service installations and other things attached to the main structure
• Any pipes or cables used to provide services to a party other than the owners corporation or its members (shared services)
• A boat or a pontoon permanently moored or fixed to land.

Insurance for mixed-use developments

Developments with lots used for different purposes, such as shops and homes, are called “mixed-use”. The cost of insurance may be higher for some lots than others in a mixed-use development. Specific lots within an owners corporation may be required to pay an extra premium for increased risk.

What is the minimum owners corporation insurance that must be paid?

The minimum insurance requirements for an owners corporation are:

Reinstatement and replacement insurance

This covers the cost of a rebuild should any event such as a fire occur.

The insurance premium for replacement insurance is generally one of the biggest annual costs for an owners corporation as it covers the rebuild of common property buildings.

The insurance must cover for the replacement, repair and rebuilding of the damaged property, including improvements and fixtures, the cost of demolition and removal of debris, employment of architects/surveyors and replacement of services such as driveways and fences.

When renewing insurance, an owners corporation must ensure that the sum insured is more than the value of the buildings. A valuation may be required to determine the current value.

For plans that have more than 100 lots or raise more than $200,000 in fees annually (known as prescribed owners corporations), a valuation must be carried out every five years.

Public liability insurance

This is for common property which protects the owners corporation from incidents that occur on common property such as slips or falls.

Public liability insurance is there to protect the owners corporation and pay compensation out if someone is injured, their property is damaged, or a death occurs on common property.

Owners corporations with common property must have public liability insurance of no less than $10 million for the common property.

Common insurance options for owners corporations

Your owners corporation can, by ordinary resolution at a general meeting, decide to take out any extra insurance that it considers important to safeguard the interests of its owners.

10 insurance options to be aware of:

1. Office bearer’s liability
2. Workers compensation cover
3. Voluntary workers’ insurance
4. Fidelity guarantee cover
5. Machinery breakdown
6. Catastrophe cover
7. Flood cover
8. Legal defence costs, government audit and health & safety breaches
9. Loss of rent and/or alternative accommodation
10. Other insurances that require consideration

1. Office bearer’s liability

Protects members of the committee should they become legally liable to pay compensation for any wrongful act they commit while carrying out their duties. Fraudulent acts are not insured under this insurance policy. Insurance options such as CommunitySure offer cover up to $30 million, but you only pay for $20 million.

2. Workers compensation cover
This protects employers and injured workers from financial costs when a worker (i.e. an employee) sustains a work-related injury or disease. This can be a bit of a grey area since an owners corporation responsible for any common areas used only for residential purposes is generally excluded from the WHS laws, unless it employs a worker.

3. Voluntary workers’ insurance (personal accident cover)
Provides compensation to any person who voluntarily works on behalf of an owners corporation. The volunteer worker’s name must be recorded in the books of the owners corporation. A voluntary worker is any person who does work without receiving or expecting to receive any fee or reward.

4. Fidelity guarantee cover
Protects the owners corporation against fraudulent embezzlement or fraudulent misappropriation of the owners corporation’s funds and tangible assets.

5. Machinery breakdown
This insurance type covers plant and equipment damage and resulting loss. Examples of equipment covered include air conditioning, lifts and elevators, cooling towers, electrical switchboards, and building automation/management systems.

6. Catastrophe cover
Provides an additional sum where the building is considered a total loss or partial loss due to catastrophe where a state of emergency is declared such as an earthquake, bushfire, tsunami or cyclone.

Some insurers provide automatic catastrophe cover (e.g. 15% of the building sum insured), while others will charge a premium to offer a selected percentage of the sum insured (e.g. 15% or 30%).

7. Flood cover
Flood cover is not necessarily an automatic cover, however if it is not included on a policy it can be requested from the insurer.

The term flood means, the covering of normally dry land by water that has escaped or been released from the normal confines of any of the following: a lake, a river, a creek, another natural watercourse, a reservoir, a canal and a dam.

If this insurance type is of interest to you, it may be worth looking further into the difference between flood versus storm cover. Read more about Storm and flood damage, and how the difference may impact your body corporate insurance by clicking here.

8. Legal defence costs, government audit and health & safety breaches
Provides protection and cover for professional fees and legal expenses in defending actions brought against the owners corporation.

9. Loss of rent and/or alternative accommodation
If a unit becomes uninhabitable as a result of an insured peril, the unit owner can claim for loss of rent or alternative accommodation during the period that the premises are unfit for occupancy, based on the rental value of a unit.

10. Other insurances that require consideration are:

• Lot owners’ improvements to the building
• Appeal expenses
• Common property contents (for items such as carpet and paintings in foyers).

Remember, additional insurance should always be on the agenda and considered at the annual general meeting.

What is not covered by owners corporation insurance?

The 4 types of insurances that are the owner’s responsibility are the following:

1. Insurance for individual lot owners
2. Storage cage insurance
3. Vehicle damage if it occurs on common property
4. Loss of rent

1. Insurance for individual lot owners
Individual lot owners should take out their insurance cover regarding the destruction of or damage to their lot from the interior paint inwards. The replacement of standard fixtures and fittings is covered under the owners corporation insurance, however other items such as personal content, carpet, furniture, curtains or blinds, appliances, air conditioning units, light fittings and valuables. Section 54 of the Owners Corporation Act 2006 specifically excludes carpet and temporary floor, wall and ceiling coverings, fixtures removable by a lessee at the end of a lease, and anything prescribed as not forming part of a building as excluded from an insurable building.

2. Storage cage insurance
Despite storage cages being situated in what may be deemed a common area, storage cage contents are deemed to be the property of the strata property owner. A lot owner needs to take out an insurance policy to protect against accidental loss or damage to contents within the storage cage. For comprehensive cover, the policy should be for both a defined event (events that are listed in the policy) as well as accidental damage.

3. Vehicle damage if it occurs on common property

Private property is not covered by owners corporation insurance even if the incident or damage occurred on common property. Your own car insurance needs to protect you from damage and theft. Generally, it is important not to leave valuables and access devices such as garage remotes in your car as the thief will then have access to the building and your owners corporation may have to reprogram all access devices which can be a costly exercise. Garage basements are increasingly being targeted by organised crime due to the increased use of storage cages.

4. Loss of rent
If the building suffers a major incident that results in your tenants unable to inhabit the apartment, then the owners corporation may potentially cover your loss of rent. However, if your tenant has caused the damage, for example, they flood the apartment, then your own landlord’s insurance needs to cover any damage to the property.

If you’d like to find out more on insurance for your property, download our FREE Community Living guide on strata financials. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.