Ok, what I have been told is, to take a hypothetical example, if the EC has been told there is a potential problem with a wall and they decide not to do anything about it and it falls down, they are probably covered by their insurers because they have made a genuine mistake in not attending to it soon enough.
However, if a builder or surveyor tells them there's a problem with the wall and it's likely to fall down, but they decide not to do anything about it and it falls down (and hurts someone) then they have ignored reliable advice. That's not a mistake, it's negligence and many insurance policies would be invalidated by that.
In this case, the Strata manger has told them several times that the carpet is potentially dangerous. They have chosen to ignore that advice so they could be in trouble if someone falls and injures themselves and the insurer says, “look at the minutes for the last three AGMs – you ignored the advice given by a reliable professional. We're not paying the bill, you can.”
That's my understanding but if I'm wrong I'd be glad for a strata manager, lawyer or insurer to put me right.