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[The Hood]

What happens when the owners corporation is in perpetual breach of the SSM Act (Strata Act) because no insurer will touch it?

SP ***** is now in perpetual breach of section s 160, a section with penalty points, because the only insurer who would insure the SP has declined to offer a renewal.
Section 160(1) is not one of those sections where the ‘must’ is optional like so many of the ‘musts’ in the Act.
This inability to insure has been foreseeable for years as it has long been the case that only one insurer would insure the property and last year that policy doubled from $13k to $26k.

Note from the minutes of the July 2022AGM for SP*****
….  It was further noted that the insurer for the building insurance has declined to offer renewal that was due on 1/7/2022 and no other insurance company has been found that will offer building insurance cover for SP ***** at this stage. The Insurance Broker is continuing to try to source a policy.

Currently there is roughly $2.6 million of building uninsured.

Section 160
Owners corporation to insure building

(1) The owners corporation for a strata scheme for the whole of a building must insure the building and keep the building insured under a contract of insurance, in accordance with this Division, that insures the building if it is destroyed or damaged by fire, lightning, explosion or any other occurrence specified in the policy (a damage policy).

Maximum penalty—5 penalty units.

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[Jimmy-T]

At the risk of stating the bleeding obvious, why won’t any insurer cover the scheme?

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[kaindub]

It may not be the fault of the OC. I am an owner in a mixed industrial units and storage units building. The last two years we have had only one insurer prepared to take our business, and that’s likely only because they have been the only insurer since inception. The broker says that because of the types of lots, particularly storage lots, insurers consider this to be a high risk building and hence decline to insure us.

Our broker has said that in the future if all insurers decline, we will need to look for an insurer outside of the approved strata list.

 

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[86_strata]

(Victoria)  I agree with @kaindub. My old complex was mixed use shared with restaurants, bars and a tattoo parlour.  The broker could only get one insurer to quote and even then we had to agree to exclude certain events from the insurance for them to renew.  They would also not allow us to increase the insured value, so we potentially were underinsured for full replacement.  It was increasingly harder and harder to get enough insurance each year.

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[The Hood]

I think the reason is not that relevant as the question is what happens when the OC can’t get insurance; the requirement is they must  have it and there are penalty points for non compliance.
A couple of reasons thrown around include mixed construction buildings and  the insurance company moving away from the type of risk exposure the SP represents; bushy rural landscape. All very hand waving stuff.

To use an analogy: The obligation to maintain and repair is not dissolved because the OC can’t find a repairer even if the OC has diligently sought one.
Same here, I can’t see the mandatory requirement (assumed mandatory due to penalty points applying) being excused because the OC hasn’t found an insurer.

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[Jimmy-T]

The Hood wrote:

I think the reason is not that relevant as the question is what happens when the OC can’t get insurance

What happens when you can’t get insurance is that you look at the reasons for that and adjust accordingly.

Once you have stablished that, exclusions and excesses could apply.  For instance, if the strata scheme can’t get insurance because of mixed use, they could ask commercial premises to provide their own insurance.

And there is provision in the Act that if the use of a lot cause insurance premiums to be increased, then the owner of that lot can be asked to make up the difference

However, it is ironic that strata schemes are legally obliged to have insurance but insurance companies are not obliged to provide cover at any cost.  That’s something Fair Trading could have a look at … just as soon as they appoint their next training wheels minister.

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[TrulEConcerned]

My recent experience may inform The Hood as to his next steps.

Ask the managing agent and committee for copies of ALL correspondence relating to insurance matters, say for the last 2 or 3 years. This should include

(1) emails to/from the managing agent and insurer;

(2) emails to/from committee members and the insurer;

(3) emails to/from managing agent and committee member; and

(4) records of phone calls of the agent and committee members with the insurer (and what was agreed/discussed).

It should not take long to discover the real reason coverage was denied. IMHO, coverage is declined because of something the committee or agent (on behalf of the OC) did or did not do. The records, if made available should answer this question.

 

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[The Hood]

TrulEConcerned wrote:

My recent experience may inform The Hood as to his next steps.

Ask the managing agent and committee for copies of ALL correspondence relating to insurance matters, say for the last 2 or 3 years. This should include

(1) emails to/from the managing agent and insurer;

(2) emails to/from committee members and the insurer;

(3) emails to/from managing agent and committee member; and

(4) records of phone calls of the agent and committee members with the insurer (and what was agreed/discussed).

It should not take long to discover the real reason coverage was denied. IMHO, coverage is declined because of something the committee or agent (on behalf of the OC) did or did not do. The records, if made available should answer this question.

 

Jimmy-T wrote:

The Hood wrote:

I think the reason is not that relevant as the question is what happens when the OC can’t get insurance

However, it is ironic that strata schemes are legally obliged to have insurance but insurance companies are not obliged to provide cover at any cost. That’s something Fair Trading could have a look at … just as soon as they appoint their next training wheels minister.

Exactly  right with the irony of it all. And I believe Victor is back for another stint of being ineffective.

The agent says:
The main reasoning from the insurers has been ‘ due to construction of the building and the high bush fire exposure’.
Neither can be corrected. The SP is in a bush land setting and the buildings are what they are, i.e. multi-storey sawment construction (a mixture of sand, sawdust and cement in timber framing).

I somewhat like the idea of can’t insure as the building are hardly used, cost way to much to insure and represent bad decision making in the past. The main building (the Hall) was commenced in the early 1990s and still only has interim approval after the local Council had the embarrassment of giving the Hall an annual $2000 donation as part of its public hall funding program when the Hall was still a building site and not available to the broader public due to the then terms of the SSMA which made leases ans licences not available to the broader community.

It seems some of the many defective strata buildings in Sydney might soon run into the can’t insure issue so perhaps while the ‘Strata Act’ review is still under way the boffins down in Macquarie St might like to consider what to do.

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[Jimmy-T]

The Hood wrote:

The main reasoning from the insurers has been ‘ due to construction of the building and the high bush fire exposure’. Neither can be corrected. The SP is in a bush land setting and the buildings are what they are, i.e. multi-storey sawment construction (a mixture of sand, sawdust and cement in timber framing).

Would make a great newspaper story.  Just say the word and I’ll unleash the hounds!

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