ACT: Q&A Strata Insurance Outlined in UTMA 2011

The LookUpStrata Team

5 years ago

This ACT lot owner would like to know about changes to strata insurance excess impose by Unit Titles Management Act 2011.

Table of Contents:

QUESTION: How are claims for water damage handled in our Class B unit complex, especially in cases of multiple rain events?

QUESTION: Given the increased use of lithium-ion batteries in cars, bicycles, skateboards, scooters, etc., should owners corporations of B Class complexes be aware of any recent legal/insurance developments?

QUESTION: Our units recently received hail damage. Two lots opted for a cash settlement from the insurance but have not done the repairs. How do we ensure they repair the damaged property?

QUESTION: Our unit has a leak from the bathroom into the car park due to a failing waterproof membrane. Should the strata insurance cover the cost to remove and replace fixtures and fitting during the repair process? The owners corporation has refused.

QUESTION: My apartment ceiling is damaged. Is this covered by strata insurance, or does it fall under contents insurance?

QUESTION: Should insurance cash settlements be paid into the Owners Corporation’s bank account instead of being paid out directly to the owner of a unit?

QUESTION: In the event of damage to glass windows/panels and sliding doors, whether this is accidental or through defective workmanship or construction, who pays for the remediation of the damage?

QUESTION: For a Class B unit in the ACT, do I need to insure the structure of the building in addition to landlord’s insurance.

QUESTION: Where in the legislation does it state that the Owners Corporation is responsible if the event is insurable but no valid claims can be made because the invoice is under the insurance excess?

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Question: How are claims for water damage handled in our Class B unit complex, especially in cases of multiple rain events?

In our Class B unit complex, where the owners corporation handles building insurance, but individual owners are responsible for their repairs and maintenance, how are claims for water damage handled, especially in cases of multiple rain events causing ongoing damage? Who determines the validity of a claim, and how are the responsibilities between the owners corporation and individual owners defined in such situations?

Answer: Policies will define what an “event” or “claim” is and, in some instances, will provide specific timeframes on when an event stops.

We recommend specific advice from your insurance broker. Policies will define an “event” or “claim” and, in some instances, will provide specific timeframes on when an event stops. If you don’t have an insurance broker, it would be advisable to read the policy conditions defining claims/events and excess provisions.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in Strata News #717.

Question: Given the increased use of lithium-ion batteries in cars, bicycles, skateboards, scooters, etc., should owners corporations of B Class complexes be aware of any recent legal/insurance developments?

Answer: There are currently no notable insurance restrictions or compliance issues regarding EV storage or charging station installation.

In the wake of a global shift towards sustainable transportation, Australia is witnessing a significant increase in electric vehicle (EV) usage. With governmental policies encouraging this shift, it’s projected that by 2040, all new vehicle sales will be electric. But what does this mean for strata insurance?

At the time of writing this response, I’ve observed that most insurers have yet to implement specific exclusions or conditions related to electric vehicles and charging stations. This means there are currently no notable insurance restrictions or compliance issues regarding EV storage or charging station installation.

While the insurance industry hasn’t yet been significantly impacted, potential risks associated with EVs are on the rise:

Fire Hazards: Incidents of fires from EV charging and storage.

Structural Integrity: Some EVs may be heavier than traditional vehicles, potentially affecting building structures.

Electrical Safety: The high voltages required for EV charging pose electrocution risks.

Malicious Actions: Risks of theft or damage to charging stations.

These factors represent ’emerging risks’ that could lead to future policy exclusions, premium adjustments, or increased excesses if major losses occur. Notwithstanding, strata buildings should be aware that these conditions may evolve, leading to possible policy exclusions, adjustments in premiums, or increased excesses, especially if strata insurers experience significant losses.

To safeguard against risks, we recommend strata buildings consider the following:

Adhere to all regulations and manufacturer guidelines for charging stations.

Strategically place charging stations to mitigate fire risks and ensure surrounding areas are clear of combustibles.

Implement and maintain appropriate fire protection measures.

Store cables and equipment safely.

Regularly maintain charging stations as per manufacturer specifications.

Clearly define responsibilities regarding vehicles and charging stations to avoid legal disputes.

Employ qualified contractors to ensure electrical systems can support the added load.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #686.

Question: Our units recently received hail damage. Two lots opted for a cash settlement from the insurance but have not done the repairs. How do we ensure they repair the damaged property?

Our insurance cover allows lot owners to receive a cash settlement for their claims. All six units in our class B building were recently damaged in a hail storm. Two of the units opted for a cash settlement of their claim. The damages are not that extensive. The lots are liveable, and some repairs are cosmetic.

These two units with cash settlements have not carried out any of the repairs listed in their scope of work. Are the damaged but unrepaired parts of their units still insured?

We like these owners to use the cash settlement to carry out the repairs as agreed in our insurance claim process and not risk our insurer refusing to cover these two and possibly all six units. What could the OC do to get the repairs carried out?

Answer: The owners’ failure to rectify the damage can impact insurability for the whole complex.

Insurance policies will contain exclusions for unrectified damage associated with a previous claim and will usually extend to any damage resulting from a failure to repair property after a claim.

The owners’ failure to rectify the damage can also impact insurability for the whole complex, as you need to disclose all things relevant to the insurer’s decision to insure you. This can include any unrepaired damages.

Regarding repairs within individual lots, the responsibility typically falls on the lot owner to undertake repairs. You may have specific bylaws or rules regarding maintenance and repairs covering this. In the absence of such bylaws, the owners corporation may have limited authority to require a lot owner to make repairs to their lot.

With the above in mind, I recommend you contact the owners of the two units that opted for a cash settlement. Express your concerns regarding the importance of repairing the damages and emphasise that the repairs are necessary to maintain insurability for the complex.

If this does not get a satisfactory outcome, you may refer a strata dispute to ACT Civil and Administrative Tribunal (ACAT) or seek legal advice.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #650.

Question: Our unit has a leak from the bathroom into the car park due to a failing waterproof membrane. Should the strata insurance cover the cost to remove and replace fixtures and fitting during the repair process? The owners corporation has refused.

I bought a unit 4 months ago. We were recently advised that our unit has a water leak into the carpark below, impacting the car spaces of other units.

After investigation, it was found to be a failing waterproofing membrane and ingress leaks from a toilet that was not appropriately sealed to the floor. Mould is visible in this space on ceiling of the car park.

The entire bathroom will need to be stripped out to repair the membranes and drains. I have requested submitting an insurance claim to the owners corporation to cover the costs of removal and replacement of the fittings and fixtures. They have decline the request for submission. Isn’t this what strata insurance is for? I am happy to cover the excess.

Answer: It is unlikely the insurance will pay to cover the cost of the failed waterproofing and it therefore then falls back on the owner of the property to undertake appropriate repairs.

Water damage claims that involve leaks from failed waterproofing membrane claims are some our most contested claims with insurers because there is often a component of maintenance and also repair of damage. Insurers cover the cost to repair water damage but may exclude repairs costs related to fixing the leak (i.e. the damaged membrane) including tiling costs. Failed membranes often happen from excluded causes such as lack of maintenance, rust, oxidation, wear and tear, corrosion, gradual deterioration, developing flaws, building defects etc. However, the consequential damage (to insurable property) should be covered as water damage.

In this instance, it is unlikely the insurance will pay to cover the cost of the failed waterproofing and it therefore then falls back on the owner of the property to undertake appropriate repairs.

Unfortunately, it appears the new owner of the lot will be responsible for the costs as it does not form part of an insurance claim.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #611.

Question: My apartment ceiling is damaged. Is this covered by strata insurance, or does it fall under contents insurance?

Is the ceiling of a room under an attic (or crawlspace) part of a structure and, therefore, covered by strata insurance, or is it property that needs to be insured by the owner of the property?

My apartment ceiling is damaged and I have been told that owners of class B townhouses need only insure their contents.

Answer: The full definition of “Insured Property” or “building” can be found in the policy wording.

Provided the strata insurance covers the lot in question, the basic principal is that if you pick the unit up and shake it anything that falls out is lot owners contents + temporary flooring such as carpet, blinds & curtains, appliances that are not permanently attached. These items need to be insured by contents/landlords insurance.

Other permanent fixtures including but not limited to the ceiling, kitchen/bathroom cabinetry etc are covered by strata insurance subject to the policy terms, conditions & exclusions.

Lot owners should also have contents/landlords insurance to cover property not insured by the strata policy and liability within the lot.

The full definition of “Insured Property” or “building” can be found in the policy wording.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #609.

Question: Should insurance cash settlements be paid into the Owners Corporation’s bank account instead of being paid out directly to the owner of a unit?

Should insurance cash settlements be paid into the Owners Corporation’s bank account instead of being paid out directly to the owner of a unit?

An owner is demanding the settlement be paid into their (joint owner) account.

What option is correct? We find the word in the UTMA item 103 us of the word “apply” unclear.

Answer: You need to consider not only what is required by the Act, but the insurer’s requirements and conditions.

When considering who should get a cash settlement, you need to consider not only what is required by the Unit Titles (Management) Act 2011 (UTMA), but the insurer’s requirements and conditions.

Section 103 of the UTMA states that If an owners corporation for a units plan receives insurance money for damage to, or destruction of, any building on the land, the corporation must, without delay, apply the insurance money to rebuilding and reinstating the building.

This does not specially say the Owners Corporation must receive the money or in the instance where they do pay the contractors directly. Reimbursing an owner for an expense may still demonstrate application of insurance money to rebuilding and reinstating the building.

Insurers, however, may require that the payment is made to the Owners Corporation bank account and refuse to reimburse owners directly. The Owners Corporation should make representations to the insurer to enquire if this is possible and if so, what their process is.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #605.

Question: In the event of damage to glass windows/panels and sliding doors, whether this is accidental or through defective workmanship or construction, who pays for the remediation of the damage?

I am trying to understand Strata Insurance responsibilities in ACT.

In the ACT, owners can’t insure their property for building cover as this is an owners corporation responsibility, subsequently, owners can only insure for contents with no such additions of cover for things like glass breakage for windows available to policyholders.

In the event of damage to glass windows/panels and sliding doors, whether this is accidental or through defective workmanship or construction, who pays for the remediation of the damage?

Is through the Strata Building Insurance?

Answer: While the owners corporation has the responsibility to insure property inside a lot, outside of an insurance claim, they may not be responsible for maintaining that property.

It is important to understand that while the owners corporation has the responsibility to insure property inside a lot, outside of an insurance claim, they may not be responsible for maintaining that property.

For any damage/maintenance/defect issues on a strata property there are two considerations regarding rectification works.

The first consideration is whether there is an insurance claim. Most strata polices will cover sudden and accidental loss not otherwise excluded under the policy. In the case of defects and maintenance issues, these items will not be covered by the strata insurance policy, but an event causing sudden and accidental damage (like most glass breakage claims) a claim can be considered.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165

This post appears in Strata News #581.

Question: For a Class B unit in the ACT, do I need to insure the structure of the building in addition to landlord’s insurance.

I own a Class B unit in the ACT and wish to clarify if I need to insure the structure of the building itself in addition to landlord’s insurance.

There are no common walls to adjacent units, but I am responsible for all repairs to the unit including cracks in the brick work due to subsidence. Despite this the Owners Corporation has an extensive insurance policy, so I am a little confused. Can you clarify?

Answer: If the appropriate steps have been taken in accordance with the legislation to exempt the owners corporation from the requirement to take out insurance, the responsibility to insure the building falls on the lot owner

The Unit Titles (Management) Act 2011 states that “an owners corporation for a units plan containing only class B units may, by unanimous resolution, exempt itself from the requirement to take out building insurance for any risk stated in the exemption resolution for all buildings (or parts of buildings) that are on the class B units.”

In essence, if the appropriate steps have been taken in accordance with the legislation to exempt the owners corporation from the requirement to take out insurance, the responsibility to insure the building falls on the lot owner.

In relation to building cracks that have appeared due to subsidence, I think it is important to understand the difference between “responsibility to insure” and “responsibility to maintain” property. It is my view this is where the misunderstanding may be.

If the owners corporation has not passed a resolution to exempt itself from the requirement to take out insurance, then the owners corporation has “responsibility to insure” the building.

For events that fall outside of an insurance claim, a lot owner has “responsibility to maintain” property that forms part of their lot. Damage that is caused by subsidence or earth movement is a common exclusion and I am not aware of a strata or home policy that provides cover for these events.

If the owners corporation has a requirement to insure the building and they have done so, they have met their requirements under the Act. If the insurer has declined a claim, it falls on the owner of the property to repair that property.

Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 07 3899 5129

This post appears in Strata News #490.

Question: Where in the legislation does it state that the Owners Corporation is responsible if the event is insurable but no valid claims can be made because the invoice is under the insurance excess?

Where in the legislation does it state that the Owners Corporation is responsible if the event is insurable but no valid claims can be made because the invoice is under the insurance excess?

Our understanding of UTMA2011 is that if the invoice is under excess there is no valid insurance claim. No claim this no excess, thus the Owners Corporation have no business in paying.

The strata company is now saying that they can consult with the insurance company and then the committee can decide to pay the invoice using the general fund. Can the Committee decide to pay for invoices using the general fund for work on private property without any insurance claims? I can seem to find anything about these “insurance under excess” claims.

The reason why we became concerned is that a very noticeable non-insurable event was mentioned in a meeting in 2020. Since then, we are very concerned with how the Committee members may be using this as an excuse to use general funds. We have attempt to question the present and past insurance companies and also the insurance broker on how they decide whether it is insurable.

To summarise the response I received from all groups, I would say that unless there is a claim where all these invoices go over the excess and become a valid claim, the insurance companies and brokers know nothing unless there is a claim. The strata company claims that the insurance company are the one that states it’s payable but no evidence is ever provided.

I was wondering if there is any part of the legislation that allows the general fund to be used this way.

Answer: My view is that the lot owner (or member) can still make a claim on the insurance in the event that the claim is less than the excess.

See paragraphs 50 – 66 of the ACAT decision: ACT CIVIL & ADMINISTRATIVE TRIBUNAL

In the light of the decision above, my view is that the lot owner (or member) can still make a claim on the insurance in the event that the claim is less than the excess.

While the excess will need to be paid by the owners corporation, members making insurance claims should be aware that Section 31 of the Unit Titles Management Act enables an owners corporation, where it has incurred an expense or carried out work that is necessary because of—

a wilful or negligent act or omission of a member of the corporation, or an occupier of the member’s unit; or

a breach of its rules by a member of the corporation, or an occupier of the member’s unit,

to recover the amount spent or the cost of work from the member as a debt.

Christopher Kerin Kerin Benson Lawyers E: enquiries@kerinbensonlawyers.com.au P: 02 8706 7060

This post appears in Strata News #469.

Have a question about strata insurance excess in ACT or something to add to the article? Leave a comment below.

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