The tug of war between building defects and strata insurance

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The tug of war between building defects and strata insurance

The type and cost of insurance cover of your building is directly related to what kind of defects your building may have and the level of damage they could cause. Here is what you should know so you can protect your property in the best possible way.

According to UNSW’s City Futures Research Centre, 75 per cent to 85 per cent of owners’ corporations have identified major defects in their buildings1.

With numerous cases of building defects coming to light, having your building insured is the right thing to do. How do you know what kind of insurance you need and for how much? When it comes to being safe, you should take care to cover all the bases – evaluate your options and be aware of any hidden or ambiguous clauses and exclusions in your insurance contract.

Nearly all insurance contracts have exclusions relating to defects, both known and hidden. Often, certain types of defects in your property may prevent you from having adequate insurance. So, knowing a few things in advance can keep you and your property safe.


1. Have a proactive approach to rectification

Ensure your owners corporation or body corporate adopts a proactive approach in rectifying any defects by being ahead of the situation, connecting with stakeholders and ensuring compliance from all parties. This will maximise insurance coverage and avoid the risk of a claim denial due to defects or defective parts.


2. Be aware of the risks associated with defects

Knowing what kind of defects may compromise the safety of the building is crucial. For an owner, it may have personal financial implications and potential exposure to legal action.

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3. Know how defects affect cost and type of insurance

The cost and type of insurance cover available for a building with defects will vary between insurers and their underwriting guidelines for defects. Generally, an insurer will consider the following factors:

  • the severity of the defects
  • the age of the building
  • whether there is or will be legal action relating to defects
  • are there plans for rectification of defects
  • the owners attitude to rectification


4.  Provide documentation and reports for risk assessment

By providing as much information as possible, you will be able to achieve the best insurance outcome based on your specific circumstances. There are a variety of sources of valuable information to determine the extent and severity of the defect and to decide the insurance cover available, such as:

    • Professional reports from engineers etc.
    • A builder’s scope of works to rectify the defect
    • A copy of any building contracts showing the work required and associated cost
    • Minutes of meetings showing the plans for remedial action


5. Take additional insurance cover to protect your property

Protecting the contents of your property (lot) with insurance is always a good idea. If you are renting your property, you may consider taking out a landlord’s insurance cover too. We recommend you discuss your options with your insurance provider so your’re not left vulnerable when there’s a crisis from building defects.

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.

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

1. UNSW’s City Futures Research Centre, 2018, Defects in Strata: Research Overview

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