26 May When are you liable for the insurance excess on a sectional title claim?
Owners of units in sectional title schemes are often surprised when they need to pay an excess on a claim submitted to the body corporate’s insurers. It seems like many owners do not understand the relationship they have with the scheme’s insurance policy and the terms attached to such a policy.
One of the important responsibilities of trustees is to ensure that the common property of the scheme is adequately insured. The body corporate, as a collective, is responsible for arranging insurance cover and to pay the monthly or annual premiums via the trustees.
What is covered by the body corporate’s insurance policy?
This policy covers eventualities on the common property and claims submitted by owners inside their units, including claims for geysers that become obsolete; these claims are all subject to the conditions of the individual policy.
All owners contribute to the insurance premium via their levy which is determined by the approved annual budget and this contribution is calculated on each unit`s participation quota (PQ). If an owner has additional cover for their unit, that owner is responsible for the additional premium.
Who pays the excess?
The basic principle of excess payments in sectional title schemes is that if a claim is submitted for damage on common property, the body corporate pays the excess. Generally, the owner who submits the claim will be responsible for the excess payment, but there are some circumstances where this may differ.
When damage is caused inside a unit or to an owner`s possessions on the common property, i.e., in the parking area, by something on the common property, the body corporate will be responsible for the excess.
However, when damage is caused by one owner as a result of an event in their unit which causes damage to another owner in their unit, the owner who has suffered the damage and who has submitted the claim, must pay for the excess. An example of this kind of eventuality would be when the unit on top has a leaking washing machine that causes damage to the unit directly below.
In this case, the aggrieved owner can follow a process to claim back the excess amount from the owner whose washing machine was the cause of the damage.
Can the body corporate cover all excess payments?
It is possible for the body corporate to pay the excess amount for all claims submitted by member of the scheme, even those claims where the damage is inside the unit. For this to happen, the scheme must pass a special resolution to this effect. In additional, the body corporate will need to ensure that they plan for this expense in their budget. Each owner will then effectively contribute to this expense via their monthly levy.
Insurance companies require excess payments for all claims submitted in a scheme; this is how they manage risk when claims are submitted. Insurance companies will increase excess amounts payable if a scheme has a history of excessive claims for specific eventualities, such as geyser claims.
For the sake of transparency and in order to avoid any discontent, it is important that trustees understand what excess amounts are payable on their scheme’s policy and for what types of claims. This will guide them when they renew their insurance policy, allowing them to keep all the members informed of the excess payments required when claims are made.