Insurance in Sectional Title

So often the question is asked: What am I paying for in my levies? What am I getting for the huge amount I pay?

One of the items that are covered by the levies, is the insurance for the buildings of the body corporate, as well as the units of the individual owners. The insurance in Sectional Title for all of the buildings and other insurable risks are paid for by the body corporate and covers both the body corporate and the owners’ exposure to losses.

In Homeowners Associations, each owner has their own insurance policies in place, and only the buildings and property of the HOA itself is covered by the HOA insurance (guard rooms, outbuildings, community halls, etc.).

In sectional title, the concept that the insurance covers both parties’ responsibilities and losses, is sometimes hard to understand. Damage to the inside of the unit (owners’ responsibility), can occur due to a cause from outside (body corporate responsibility), but at other times can originate from inside or from someone else’s unit. So many parties can be involved under the same claim. Always keep the cause and who is responsible for what (in terms of legislation), in mind.

1. If damage occurs inside the unit due to an incident (for instance accidental spillage of water damaging the carpets), the damage will be covered by the insurance policy. Only one party is involved, and the cover is in place. The owner will only pay the excess payment on the claim.

2. If damage occurs on both the inside and outside of the building, which is due to an incident, for instance, a hailstorm, both the body corporate and the owner is involved and both have cover, which may even be included in one claim. In this case, the excess payment is usually shared. Depending on the circumstances, if the damage is due to negligence by the body corporate to do maintenance, the insurers will mostly honour the resultant damage claim of the owner of the unit but will then withdraw further cover for resultant damage, until the outside repairs have been done. They may require proof that it has been done, before reinstituting cover.

3. If damage originates from another unit, another owner is involved. The claim (for instance a damaged ceiling and carpets due to the leaking of a shower-floor from the above unit) will be honoured by the insurance, but the costs of the repairs of the shower will be for the owner of the unit from where the damage originated. It is important to note that owners have a duty to act as a matter of urgency to prevent damage to other units. If the unit with the damage, has other damage which is not covered by insurance, or even the excess payment, it can be recovered from the owner from where the damage originated.

4. Hot water installations – Geysers are the responsibility of the owner of a unit. Although it is covered by the insurance of the body corporate, the excess payment is for the account of the owner. The Act specifically states that any costs involving the hot water installation are for the account of the owner of the unit.

5. If damage occurs on body corporate property, for instance, a car driving into the electric motor gate, the body corporate will be covered for the damage, minus the excess payment. The insurance company will try to recover its losses from the party responsible for the damage, and the body corporate can also recover the excess payment in the same manner. It is easy when it is an owner, or even the guests or tenants of an owner, as it can be recovered by means of the levy account.

GENERAL PRINCIPLES OF INSURANCE

Insurers are only prepared to take risks which they carefully choose on the basis of the exposure they will take on. They use statistics to calculate the risk and use different methods to minimize their exposure.

Some risks are so great that they cannot accept the exposure for it, and the owner will have to carry the exposure. Typically, these are “Acts of God” (which means large natural disasters like hurricanes, etc.), war and other calamities. In some cases, as in very large, risky cases they will give cover at a very large premium and obtain other insurers to help carry the risk (under-insurers). It is mostly impossible to get cover for subsidence and landslip (which is cover for sinkholes), in dolomite areas. In these areas, insurers have such impossible requirements, before they will even consider cover, that it is not worth it. (very expensive geotechnical reports, requiring sufficient boreholes to establish ground formation, etc., and then they still are under no obligation to give cover).

Insurance also excludes any claim that has as its cause, something to do with maintenance, latent (unknown and hidden) defects, builder defects, ground formation, etc.

The cover is basically for things that should not ordinarily occur and which if it does, the person seeking cover, does not want to take the risk of, himself and is prepared to pay for someone else to take the risk.

A good rule of thumb is that something must have happened. An incident, not something happening over a period of time. A good example is a damage to roofs, that cause damage to insides of property. It is the duty of the body corporate to keep roofs in good condition and do the maintenance that is required. Damage due to anything maintenance-related, will not be covered (sometimes resultant damage is covered to a certain extent). Should strong wind or terrible hailstorm damage the roof, however, that is an incident and it will/should be covered by insurance.