Insurance for two-lot schemes

Our owners’ corporation (in NSW) has wrestled with the issue of insurance for 2 lot strata schemes for several years. Both owners in our corporation would prefer to arrange our own building insurance.

However we believe that doing so risks invalidating cover because there are additional complexities that I don’t think have been covered by previous postings.

Section 160 of the NSW Strata Schemes Management Act 2015 No 50 imposes a general obligation for the owner’s corporation to insure the building(s) that comprise their strata scheme.

Section 160(4) provides an exception for 2 lot schemes which allows buildings to be insured separately:

(4)  This section does not apply to an owners corporation for a strata scheme comprising 2 lots if—

(a)  the owners corporation so determines by unanimous resolution, and

(b)  the buildings comprised in one of those lots are physically detached from the buildings comprised in the other lot, and

(c)  no building or part of a building in the strata scheme is situated outside those lots.

Our strata scheme would meet these conditions. It comprises two completely separate houses with a footpath common property.

However, Section 164 of the Act lists other non-building mandatory insurance cover that must be taken out by an owners’ corporation, not the individual lot holders, and with no exception for 2 lot schemes.

164   Other mandatory insurance requirements for owners’ corporation

(1)  An owners’ corporation must take out the following insurance with an approved insurer, in addition to any other requirements of this Part—

(a)  insurance in respect of any occurrence against which it is required by law to insure, including any insurance required by the <u>Workers Compensation Act 1987</u> and the <u>Workplace Injury Management and Workers Compensation Act 1998</u> to be taken out,

(b)  insurance in respect of damage to property, death or bodily injury for which the owners corporation could become liable in damages,

(c)  insurance against the possibility of the owners becoming jointly liable because of a claim arising in respect of any other occurrence against which the owners corporation, in accordance with a special resolution, <u>decides</u> to insure,

(d)  insurance against any damages for which the owners corporation could become liable because, without fee or reward or any expectation of fee or reward, a person acting on behalf of the owners corporation does work in a <u>building or on the common property</u> in the strata scheme,

(e)  insurance of any other class prescribed by the regulations for the purposes of this subsection.

Maximum penalty—5 penalty units.

(2)  Insurance taken out in accordance with subsection (1) (b) must be for a cover of not less than $10,000,000 for each event for which any claim or claims may be made or, if the regulations provide for another amount, that other amount.

(3)  The regulations may provide that the amount is to be calculated or determined in the manner prescribed by the regulations

These insurances, particularly 164(1) (b) and (d), would apply to any common property, however small.

The problem is that we have never found an insurer who will cover these Section 164 compulsory insurances separately from the building insurance.

Thus we a forced to insure the buildings jointly under the owners’ corporation using a specialist strata insurer so that we can also obtain the compulsory Section164 cover.

This is quite a problem when the two buildings are of different insurable value. Providers of strata insurance only provide cover for the combined insurable value, not the two building separately.

Also, most no-specialist strata insurers will not quote on building only insurance for a building in a 2 lot strata scheme.

Our owners’ corporation position is that if we take out only individual building insurance, we will be in breach of the Act but, more seriously, lack of Section 164 cover could be a reason for an insurer of the building only to invalidate cover if a claim is made.

Is my understanding of the insurance issue correct?

Has anyone found an insurer that will cover the Section 164 insurances separately from the building insurance?