Richard Gration – Ninth Floor Selborne Chambers (02) 8915 2113 rgration@selbornechambers.com.au
Topics What is insurance and why does my strata plan have to have it? Individual owners’ contents insurance / owners corporation insurance Terrorism insurance Players — insurer, broker, strata manager ‘Authorised Representative’ / ‘Insurance Distributor’ Commissions
What is insurance? The insurance relationship most commonly arises by a contract of insurance. A contract of insurance exists where one person (the ‘insurer’) undertakes, in return for some agreed consideration (the ‘premium’), to pay another person (the ‘insured’ or ‘assured’) a sum of money, or provide an equivalent benefit, on the happening of a specified event, the occurrence or timing of which is uncertain: Prudential Insurance Co v Inland Revenue Cmrs [1904] 2 KB 658.
Why must my strata plan have insurance? Section 83 SSMA: Owners corporation to insure building (1) The owners corporation for a strata scheme must insure the building and keep the building insured under a damage policy with an approved insurer in accordance with this section. (2) The building is to be insured for at least the value of the building indicated by the last valuation obtained for the building. (3) The damage policy is to be in the name of the owners corporation.
What is the ‘building’? Section 81 SSMA: Building includes: owners’ improvements and owners’ fixtures forming part of the building other than paint, wallpaper and temporary wall, floor and ceiling coverings, but does not include: fixtures removable by a lessee or sublessee at the expiration of a tenancy
Owners’ improvements and fixtures Fixture : an item ‘affixed’ to the building (ie. not just resting by its own weight) for the purpose of better use or enjoyment of the building, as distinct from use or enjoyment of the item itself Includes : kitchen cupboards, built-in furniture, attached or built-in light fittings and other such electrical appliances (such as stoves and water heaters), bathroom and kitchen fittings, marble, slate, tiles, vermiculite, plaster, plasterboard, parquet or rendered floor, wall and ceiling finishes, fixed carpet, floor coverings fixed with an adhesive (such as vinyl, cork or rubber), exterior awnings and blinds and intercom systems within a lot
Temporary wall, floor and ceiling coverings Office of Fair Trading’s policy is that the following items are not included in the definition of ‘building’: paints, varnishes, stains and similar treatments carpets and underlay wallpaper, fabric or similar soft wall and ceiling finishes coverings of vinyl, cork or similar material which are not fixed with an adhesive to the floor curtains and blinds within a lot light fittings or other electrical appliances that are not built-in and can be removed without interference to the electrical wiring
What is a ‘damage policy’? Section 82 SSMA: A damage policy is to provide for the rebuilding of the building or its replacement by a similar building in the event of its destruction so that every part of the rebuilt building or the replacement building is in a condition no worse or no less extensive than that part or its condition when that part was new. the repair of damage to, or the restoration of the damaged portion of, the building in the event of its being damaged but not destroyed, so that the repaired or restored portion, is in a condition no worse or no less extensive than that portion or its condition when that portion was new. the payment of expenses incurred in the removal of debris. the remuneration of architects and other persons whose services are necessary as an incident to the rebuilding, replacement, repair or restoration.
Other compulsory insurance Section 87 SSMA: In addition to building insurance, the owners corporation must take out insurance: for Workers Compensation if required by law (if it has any employees) in respect of damage to property, death or bodily injury for which the owners corporation could become liable in damages. Must be for not less than $10 million for each event in respect of which any claim or claims may be made against any damages for which the owners corporation could become liable by reason that, without fee or reward or any expectation of fee or reward, a person acting on behalf of the owners corporation does work in a building or on the common property in the strata scheme
Damage to property, death or bodily injury Not ‘public risk insurance’ (which would cover only third persons, but not owners). Covers property damage, death or bodily injury to owners, tenants, invitees or any other person Key concept is ‘ for which the owners corporation could become liable in damages ’ Note : ‘damage’ = the injury or harm done; ‘damages’ = compensation for damage suffered; a court-awarded sum of money which places the plaintiff in the position he or she would have occupied had the legal wrong not occurred Must first establish that owners corporation has a legal liability to another person for the loss or damage
Owners Corporation Liability Under the common law of the tort of negligence , a plaintiff must prove (on the balance of probabilities) each of the elements of the action: the existence of a duty of care breach of that duty by the defendant owners corporation reasonably foreseeable damage as a consequence of the breach of duty Whether a defendant has breached a duty of care is determined by considering the standard of care a reasonable person would have exercised in the circumstances, including taking reasonable precautions to avoid the risk of harm
Owners Corporation Liability Not every accident on or involving common property gives rise to liability on the part of the owners corporation Example : kitty litter flushed down the toilet by a tenant in a high-rise apartment building causing a blockage of the main sewer downpipe and subsequent flooding of several apartments below as the raw sewerage backed up the pipes and began to flow out of the floor wastes … As the sewerage emanated from the common property sewerage pipes owned by the owners corporation, is the owners corporation liable for damage to individual owners’ contents that are not part of the building?
Is the OC liable for the damage to owners’ and occupants’ private property? No. The owners corporation undoubtedly owes a duty of care to owners and to occupants of the building However, even though the damage was caused by sewerage coming out of common property pipes, there was no act or omission by the owners corporation that breached its duty of care Even if a plaintiff argued that the owners corporation was negligent in not taking preventative steps, such as warning occupants of the risk of flushing kitty litter down the toilet, the act of the tenant would be an ‘intervening cause’, breaking the chain of causation between the OC’s omission and the damage (called a novus actus interveniens )
Optional Insurance Section 88 SSMA: Any property in which the owners corporation has an insurable interest (garden and indoor furniture, pot plants, garden tools, equipment etc) Insurance for damage to property, death or bodily injury for which an executive committee member could become liable in damages due to an act or omission, committed or omitted in good faith, in performing the functions of office – commonly called ‘office bearers liability insurance’ Insurance in respect of misappropriation of money or other property of the owners corporation – commonly called ‘fidelity insurance’
Terrorism Insurance Terrorism insurance is available for residential buildings (at a price) Mixed use buildings with < 20% commercial use and value < $50 million classified by insurers as ‘residential’ property and able to access terrorism insurance; but ≥ 20% commercial use classified by insurers as ‘commercial’ property and those policies exclude terrorism Terrorism Insurance Act 2003 (Cth) establishes terrorism insurance scheme for commercial property, including ‘mixed use’ buildings that are ‘predominantly’ for commercial use, ie. > 50% commercial use. Gap in the market for terrorism cover for mixed use high rise buildings valued >$50 million and 20-50% commercial use
Other players in the game ‘insurance broker’ means a person who carries on the business of arranging contracts of insurance, whether in Australia or elsewhere, as agent for intending insureds — Insurance Contracts Act 1984 (Cth) section 11(1) ‘ authorised representative ’ of a financial services licensee means a person authorised in accordance with section 916A or 916B to provide a financial service or financial services on behalf of the licensee — Corporations Act 2001 (Cth) section 761A ‘insurance distributor’ means, in relation to a financial services licensee, a person who is authorised to provide financial services in relation to risk insurance products on behalf of the licensee — ASIC Class Order CO 05/1070
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