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Topic
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Hi
When I bought my apartment, I was advised by my solicitor that the apartment block that I bought into appeared to be under-insured by what she thought was a significant amount. When I mentioned this to one of the members on the executive committee, s/he said there was no point in increasing the insurance as the block of land was worth more than the building itself. However, as I've just joined the committee, I'm concerned about this lack of insurance. I've been told by friends that if anything happened to the building, the insurer would not be obliged to pay out the insured amount. There is also the risk that members of the executive committee would be liable for the under-insurance. Is this correct? What problems can occur if a building is under-insured? Are there any additional risks if the building is knowingly under-insured? Thanks.
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Replies
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Hi
If an event for which the OC is insured occurs then the insurer is required to pay out an amount in accordance with the insurance policy.
The exposure of executive committee members is as follows. Executive committee members have a common law duty of care to all entrants, invited or not, arising from your actions and omissions in connection with the building.
You also have statutory duties and obligations under a wide range of commonwealth, state and local government laws and ordinances. Breaching statutory duties can result in awards of damages and fines against you and the owners corporation, and in extreme cases, imprisonment.
Owners corporations usually carry a range of insurance to cover risks including the risk to it and you for breach of your duty. You are probably covered personally under such a policy for –
· incorrect acts;
· making incorrect or misleading statements;
· breach of duty;
· failure to act as required; and
· failure to carry out a duty properly, whilst acting in your capacity as a committee member.
However, your insurance policy probably contains a number of exclusions which might include –
· any circumstance or event where you acted outside your authority;
· any conflict of duty or conflict of interest of yours; and
· penalties, fines and some types of damages (aggravated, exemplary or punitive damages – which are uncommon and usually only arise where there is bad faith on your part).
Section 85 of the Strata Schemes Management Act requires that a valuation of a building that is required to be insured must be obtained at least once very 5 years by a person who has qualifications prescribed by the regulations.
The two best options available are:
1. simply get insurance to an adequate level cover or, if this is not consented to by the other executive committee members,
2. obtain an order from Consumer Trader and Tenancy Tribunal to obtain proper insurance.
Let me know if you have any questions.
Regards
Chris Kerin
TEYS Lawyers
(02) 9562 6500
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