I think it is important to realise the Owners Corporation can only insure the common property, which does not include paint, carpet, wall mounted TV's, pictures, internal walls, furniture etc. It follows then that if the OC can’t insure contents it would open the OC to unlimited liability because owners do not need permission to change the contents in their lot. For example they can do anything they like to the internal walls so long as they don’t damage the common property.
If a water pipe burst within the common property of a lot and destroyed all or most of the items in that lot or any other lot (including the paint) potentially the OC, according to the advice you received from the strata lawyers, would open the owners collectively to an unlimited claim because there is no practical way the OC would know what was their risk – i.e. what was in the lot; for example the lot could have had an very expensive paint finish or even an artwork painted on the wall. Would the OC be obliged to replace this, even though the leak was an accident. I would suggest no and they would only be liable (possibly) if the OC it were negligent i.e. knew about the leaking pipe and did not repair in a reasonable time.
I think this is were the Act is quite elegant in some respect (although it does have many deficiencies) because it has, under section 62, removed protection from the OC if it does not maintain the common property e.g. does nothing to fix a problem once it becomes aware. Severe penalties, quite rightly apply to the OC that sits on problems hoping they go away. But an OC doesn’t sit on a bust pipe – this is part of modern living and these things happen without warning.
I know this is a difficult concept for some who think that if they have property ruined by someone else or some external event through no fault of their own why should they have to pay for its repair or replacement. But I reiterate that is what insurance is all about. All owners should have contents insurance and the issue of repainting would not be a problem if you are insured.
I would also suggest that even if my personal property was destroyed by a negligent OC I would still claim under my contents insurance and leave to my insurance company to decide if they will pursue the OC for recovery of the cost of repair.
The lessons –
- Individual owners and tenants cannot rely on building insurance alone, they should have contents insurance,
- Owners Corporations must react as quickly as possible to repair common property once being made aware of a problem and
- You cannot reasonably expose an OC to an unlimited claims against which it cannot insure because that would be in no individual owners interest.