NSW: Q&A Whose insurance covers damage from a leak?

The LookUpStrata Team

7 years ago

We received this question from an NSW lot owner asking about unit owners insurance and what it covers.

Table of Contents:

QUESTION: A faulty tap damaged kitchen cupboards. The owner has made a claim against the strata insurance. What is the role of the Strata Manager (SM) in deciding whether or not to hand a claim to an insurer?

QUESTION: A bathroom leaked into the apartment below. The plumber had to access pipework via the downstairs apartment and identified asbestos in the ceiling. Who pays for this removal and replacement once the repairs have been carried out?

QUESTION: While we were replacing the roof, the top floor tenant reported damage to their ceiling. The damage was repaired by the BC after the roof replacement, however, months later, the tenant is claiming further damage has occurred from the same incident. Who covers the repairs?

QUESTION: I had to replace my hot water system as it caused a leak in the unit below. Now the strata manager wants a copy of my invoice so she can put it through insurance. It’s my business how much we have paid for a new system. Why do they need the invoice?

QUESTION: After heavy rain, we had a roofer come to repair the resulting leaks. In subsequent storms, several of the repaired units experienced further leaks. Would the damage be covered by strata insurance or the roofer’s insurance?

QUESTION: How long can an insurer insurance provider take to give answer on a claim after a storm bomb inundates an area?

QUESTION: Rainwater has penetrated the tiles on a top balcony and entered the unit below. Who is liable for the repairs caused by this situation?

QUESTION: The hot water system in our burst. Water leaked into the common area hallway and damaged the carpet. Who is responsible for the cost of repair to the common area carpet?

QUESTION: Water damage of a unit has been caused by a faulty appliance in a unit above. Who is responsible for the cost of the repairs or replacement to the damaged property and its contents?

QUESTION: The owners corporation engaged a company to repair our leaking shower. During the repair, the company damaged our shower screen. The OC will not fix the screen. Who is responsible?

QUESTION: My bathroom tiles are leaking due to bad renovation by the previous owner. If there is damage in the apartment downstairs, am I responsible?

QUESTION: Our strata manager has notified residents that any damage caused by flexi-hoses bursting is the responsibility of the resident. What insurance do residents need to ensure they are covered?

QUESTION: A burst pipe flooded a unit and damaged contents. Removal of the carpet uncovered magnesite flooring. Who pays for what?

QUESTION: Our hot water system damaged the downstairs neighbour’s ceiling. We can claim on strata insurance, but who pays the excess?

QUESTION: An owner left a hose connected to a balcony tap, with the tap turned on. The hose came off the tap and flooded the owner’s and two other apartments. Would this be a claim on insurance through the Strata or does the owner have to claim on their contents insurance?

QUESTION: An outside blockage flooded my laundry. Strata has suggested I claim small items from my own contents insurance. Is this correct?

QUESTION: My car was parked in my allocated parking spot. Storms caused flooding recently and my car has been written off due to damage. Should Strata accept the liability?

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Question: A faulty tap damaged kitchen cupboards. The owner has made a claim against the strata insurance. What is the role of the Strata Manager (SM) in deciding whether or not to hand a claim to an insurer?

The common water supply runs past each lot’s yard. The individual supply comes off this line and enters each unit. One rental unit had faulty taps over kitchen sink, causing mould and deterioration in cupboards. The owner demanded a claim be lodged on strata insurance. The insurer paid the claim. They also activated the “water damage excess” clause, which meant that the OC had to cover virtually all of the costs of the new plumbing and cupboards.

What is the role of the Strata Manager (SM) in deciding whether or not to hand a claim to an insurer? Is the handover automatic or does the SM assess the details and determine the merit and any limits of common property?

Where the cause of water damage is attributed (by the insurer) to tap fittings over/under sinks inside a lot, is the insurer (and thus the OC) obliged to pay out the claim?

If the Strata Manager and Committee perceive that an owner has neglected to repair the internal plumbing and cupboards, is it reasonable to:

Direct the owner to claim on their own (contents or landlord) insurances, or

Require the affected owner to pay the strata insurance excess for the OC?

Answer: The committee, and the strata manager in particular, have very limited powers to stop an owner from lodging a claim.

We advise our clients that, generally speaking, when a lot owner has paid for insurance and insurance premiums, they have an insurable interest in the policy. Often committees may feel that an owner should not have access to the policy, but in instances where there’s a dispute over whether the owner should or shouldn’t lodge a claim, insurers will often take precedence to insurable interest and lodge the claim from the owner.

The committee, and the strata manager in particular, have very limited powers to stop an owner from lodging a claim if push comes to shove. They can always say to an owner, ‘No, we won’t allow you to claim’, and if the owner doesn’t dispute that, then it solves the issue. But if the owner really pushes the matter, it’s likely the insurer will accept the claim, because the owner has an insurable interest in the policy. The strata manager is probably off the hook here, because they’re just passing on the claim and facilitating that for the owner and the owner is entitled to claim.

Most water damage claims are preventable and are a result of lack of maintenance, as you mentioned in this claim. Can the owner claim on their contents or landlords insurance? Landlords and contents insurance does not cover any building fixtures and fittings and permanent fixtures. That includes any kitchen or bathroom fixtures, kitchen sinks, cupboards and so on, so these items can only ever be claimed under the strata insurance.

With regard to excess, NSW legislation is silent on this as well. I’ve done research on this because the legislation doesn’t specifically speak about excess, so I’d like to think the benefit principle applies here. You could argue the owner is responsible for the excess because they’ve benefited from the claim. In some of my research, there is also an argument that the owners corporation maintaining the insurance policy is liable for the excess. I would like to think the first applies in this claim, and if it was me on the committee in NSW, I would be be seeking that the owner first pays the excess and if it’s disputed, then obviously get advice from your strata manager specific to that.

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 the February 2023 edition of The NSW Strata Magazine.

Question: A bathroom leaked into the apartment below. The plumber had to access pipework via the downstairs apartment and identified asbestos in the ceiling. Who pays for this removal and replacement once the repairs have been carried out?

There is a leak in the ceiling of the 2nd-floor apartment, coming from the 3rd-floor bathroom directly above it. The plumbing for the 3rd-floor apartment’s bathroom was accessed via the 2nd-floor bathroom ceiling. Asbestos was identified in the 2nd-floor bathroom ceiling and was removed so the plumber could access the pipes and fix the leak.

The works have been completed.

Strata paid for the removal of the asbestos and the bathroom ceiling in the 2nd-floor apartment bathroom so that the plumber could access and fix the leak in the 3rd-floor bathroom. The plumber confirmed that the pipes were the responsibility of the 3rd-floor apartment owner as they are the sole use of that apartment, therefore, the plumbing leak is that lot owner’s responsibility. The replacement of the 2nd-floor bathroom ceiling is now needed.

Who is responsible for replacing the bathroom ceiling of the 2nd-floor apartment? Is this the owners corporation or the lot owner of the 3rd-floor apartment? Can the owners corporation claim back the cost of the asbestos removal required to access the leaking pipe from the lot owner?

I’ve watched a webinar with Tyrone Shandiman from Strata Insurance Solutions: Water Damage Insurance Claims to see if the information could be applied to my situation.

Interestingly, the issue is not so much the insurance payout, but who pays what between the owners corporation and the lot owner of the 3rd-floor apartment. My Strata Manager said Tyrone is wrong and the owners corporation is responsible for repairs in case study 1 of the webinar, where he says the lot owner is liable for the Gyprock repair.

Answer: Removal and replacement of the 2nd floor ceiling would only be considered if it was water damaged by the leak.

In this instance, I think there are three considerations:

Insurance: What is and is not covered by insurance?

Ownership: Who is the owner of the property and therefore responsible for maintaining that property?

Legal Liability: Is someone else legally responsible for damage to the property other than the owner in the apartment above?

We will look at these questions in more depth.

Insurance

Best professional to give advice: Insurance Broker or Insurance Company

Water damage claims are our most contested claims with insurers because there is often a component of maintenance and also repair of water damage. Insurers cover the cost to repair water damage to insured property but generally exclude repairs costs related to finding and fixing the leak, as it generally considered the owners responsibility to maintain their property and such repairs relate to general maintenance or wear and tear. Insurers have exclusions such as lack of maintenance, rust, oxidation, wear and tear, corrosion, gradual deterioration, developing flaws, building defects, rectification of faulty workmanship etc. Generally, leaks are only covered if the leak is caused from “sudden and accidental damage”, such as impact damage, storm damage etc. However, the consequential water damage (to insurable property) should be covered as water damage.

In this instance, fixing the leak would likely be excluded. Removal and replacement of the 2nd floor ceiling would only be considered if it was water damaged by the leak, otherwise removing and replacing the ceiling would solely be for the purpose of fixing the leak which is excluded. You would also need to consider any asbestos exclusions in the insurers policy wording.

Ownership/Responsibility

Best professional to give advice: Strata Manager or Strata Legal Practitioner

The most qualified person to get advice on who is responsible for what property is the strata manager.

Strata Community Association NSW have released a Guide to Common Property. It states: Owners Corporation must repair anything in the ceiling. However, there may be circumstances where the owner is liable if they have made improvements to the ceiling. If it is inside the lot it is the Owners responsibility. If it is mounted within “Structural cubic space” e.g. communal ducting or a false ceiling which is designed to carry communal pipes etc. or outside the lot, then it is the responsibility of the Owners Corporation.

Legal Liability

Best professional to give advice: Legal practitioner

Despite the fact the 2nd floor Lot Owner or Owners Corporation may be responsible for the repair of the ceiling, the 3rd floor owner may still be legally liable for the damage associated with their leaking pipe.

Legal Liability claims are considered on a case-by-case scenario by insurers, solicitors & judges (if the claim ends up in court). Claims are never black and white and legal liability will vary based on the circumstances.

While Strata Insurance Solutions does not give advice on legal issues, there is possibility the 3rd floor owner is liable due to their negligence in maintaining property so as not to cause damage to others property or they are otherwise legally responsible under common law.

The 2nd floor Lot Owner or Owners Corporation has the option of seeking legal advice or alternatively submitting a written letter of demand to the 3rd floor owner. If the 3rd floor owner has contents or landlords insurance there will likely be a legal liability (Public Liability) cover in their insurance policy which may respond to this claim meaning it will not come at a cost to the 3rd floor owner.

Claims of this nature can be very complex and we recommend getting advice from various parties including the insurance broker and strata manager – if circumstances are appropriate also a legal practitioner (which will involve a cost).

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

This post appears in Strata News #610.

Question: While we were replacing the roof, the top floor tenant reported damage to their ceiling. The damage was repaired by the BC after the roof replacement, however, months later, the tenant is claiming further damage has occurred from the same incident. Who covers the repairs?

While our Body Corporate was in process of replacing the roof, the tenant on the top floor advised their real estate that there was “small patch and cracks damage” because roofing contractors were on the roof above.

After the full roof was finished and certified, the roofing supervisor inspected the damage in the unit. They found paint peeling in a corner and on the ceiling which they advised were definitely not recent but pre-existing. There were also some minor surface cracks around the cornice and, as such, were not defective workmanship as a direct result/not covered under their warranty.

The Body Corporate arranged for a painter to quote based on those initial damages reported by tenant. This was submitted to the Body Corporate insurance and approved. Around three months after the initial report of damage, the painter completed the scope of works. The painter finished and the tenant signed off on the day. Nothing further was reported.

Two months later, the tenant submitted pictures to their real estate/Owner claiming there are a few more minor cracks and paint peeling in a new spot in lounge/halfway down wall, and a small paint bubble on a different wall/near window in the same room as initial damage. None of this damage was identified by the tenant previously nor part of the scope of works or the insurance claim.

We’ve contacted the painter and he states the new issues are not the damages shown to him as part of the scope of works he was engaged to do.

The owner claims that the new damage reported by the tenant is still Body Corporate responsibility as the damage must be due to the roof issues and subsequent replacement.

Who is responsible to fix the new damage reported by the tenant? Can the new issues be claimed against insurance as part of the original damage claim?

Answer: This will depend on whether the lot owner can demonstrate the water damage was part of the same event in the claim, or a separate event.

There appear to be a few questions to unpack here.

Can the new issues be claimed against insurance as part of the original damage claim?

This will depend on whether the lot owner can demonstrate the water damage was part of the same event in the claim, or a separate event.

The tenant would be the best person to provide guidance on this issue and if they believe it is part of the same event. My recommendation would be for the owner to re-engage the original painter to provide a quote, and if they believe the damage is part of the original (from the same water ingress event) claim, provide written advice stating this.

If the water was from a separate event, it would be a separate claim and a separate excess.

Who is now responsible to fix the new damage advised by the tenant?

A lot owner is responsible for maintaining their lot and should take responsibility for repairing the damaged ceiling.

Notwithstanding, if the body corporate is responsible for maintaining the roof (i.e. it is a shared roof) the owner may have a valid claim against the body corporate if they can demonstrate the body corporate were negligent in the maintenance of the roof or that the body corporate is otherwise legally responsible.

There is no “stock-standard” response for legal responsibility, but the owner would need to submit their reasoning as to why they believe the body corporate is responsible. Not all leaks from common property are the body corporate responsibility particularly if the leaks are unforeseen and could not have been prevented with any form of maintenance.

If it is a new claim and a new excess applies, generally it is between the body corporate and lot owner to determine who is responsible to pay the excess – for claims affecting 1 lot and common property, it is usually paid for by the body corporate unless the body corporate decides it is fair for one lot owner to bear the cost.

Given the time passed already – Is this Owner’s responsibility; or is it the Body Corporate’s responsibility?

Time does not impact who is or is not responsible. However, if the owner’s delay in reporting the incident has increased the cost of repairs, this may be considered.

Can the Owner just continue to claim any future damage?

Generally speaking, a lot owner who has contributed to insurance premiums for a policy covering property they own, can demonstrate an insurable interest in the policy. This means in instances where there is a disagreement between the owner and committee over whether a claim should or can be lodged, an insurer may give precedence to insurable interest over committee expectation.

Notwithstanding, the insurer will assess the validity of the claim based on the circumstances presented.

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

This post appears in Strata News #607.

Question: I had to replace my hot water system as it caused a leak in the unit below. Now the strata manager wants a copy of my invoice so she can put it through insurance. It’s my business how much we have paid for a new system. Why do they need the invoice?

Answer: It’s not really about the price of the new system, but more about the insurance process.

This is not really a question about the price of the new system, we suggest that it is more about the insurance process, to be more precise I would need to know who the insurer was and the policy issued.

In general terms, most strata insurers will cover the resultant damage from a leaking apparatus (“the leaking in unit below”), however before any of the repairs are completed the insurer will want to know that the cause of the leak has been rectified. This may be the impetus for the requested invoice.

Some insurers also cover the cost of the location of the leak and some even contribute to the repair of the apparatus leaking.

Therefore, it is unclear as to whether the Strata Manager is simply attempting to cover off the requirement to validate the leak has been stopped (and how) or if they are attempting to recover some of your expenses in relation to the Hot Water System.

If you have no desire to claim for part or all of the replacement Hot Water System, or the policy offers no cover for the system. Then we suggest that you:

Supply the receipt for the new Hot Water System with all prices blacked out, or

You may want to have the plumber who attended simply supply a statement that they attended on ‘day xx’ and replaced the leaking Hot Water System

This will enable the Strata Manager to fulfil the policy requirement of proving the leak has been rectified while maintaining your privacy in relation to the cost.

If, however you wish the insurer to consider a claim of all or part of the costs in relation to the replacement system then a copy of the invoice (with all details) will be required.

Scott Driscoll Driscoll Strata Consulting E: scott@driscollstrataconsulting.com.au P: 0409 632 003

This post appears in Strata News #602.

Question: After heavy rain, we had a roofer come to repair the resulting leaks. In subsequent storms, several of the repaired units experienced further leaks. Would the damage be covered by strata insurance or the roofer’s insurance?

Answer: Make a claim on your strata insurance and have your insurer follow up or recover against the roofer.

Lodge a claim on your strata policy making sure the insurer is aware that the damage could have been a result of the roofer’s actions. The insurer will decide at the end of the claim whether it is appropriate to recover against the roofer for the claim.

You can go through the roofer and submit a letter of demand but that’s going to be a very prolonged process. It will go through the roofer’s liability insurance. The liability insurer doesn’t specifically have the same duty to you as the property insurer in that, they’re not bound by time to get a response back to you.

Unless it’s a really small claim that you’ve fixed and got paid for and you’re not waiting on anything, I’d firstly recommend making a claim on your strata insurance and having your insurer follow up or recover against the roofer.

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

This post appears in the September 2022 edition of The NSW Strata Magazine.

Question: How long can an insurer insurance provider take to give answer on a claim after a storm bomb inundates an area?

Answer: There are provisions for catastrophic events.

My understanding is that they have a four months under the General Insurance Code of Practice. There are provisions for catastrophic events.

The General Insurance Code of Practice provides specific timeframes as to when insurers are required to respond. Insurers normally have four months under the General Insurance Code of Practice to make a decision, however, there are provisions for Extraordinary Catastrophe that afford the insurer 12 months to respond.

If the insurer is exceeding that time, you may want to remind them of their requirements under the Code of Practice. The General Insurance Code of Practice can be found here.

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

This post appears in the August 2022 edition of The NSW Strata Magazine.

Question: Rainwater has penetrated the tiles on a top balcony and entered the unit below. Who is liable for the repairs caused by this situation?

Our 12 unit building in Double Bay NSW was built in 1934.

The rainwater has penetrated the floor tiles of one of the top floor balconies. There is no cover over this balcony and it is open to the weather.

The rainwater has also penetrated through to the ceiling of unit below.

Who is liable for repairs? Is this an owners corporation responsibility or the lot owners of above unit?

Answer: It depends on the boundaries of the lot. This is generally established by the strata plan.

From a maintenance perspective, it depends on the boundaries of the lot. This is established by the strata plan generally. Most strata companies responsibility ceases prior to the waterproofing, therefore it is the lot owners responsibility to maintain and repair the waterproofing/ tiles and grout.

For an insurance claim, if the cause of the water ingress was the failing waterproofing then the owners are responsible to repair the waterproofing, tiling and grout and the policy would pick up the resultant damage. That is of course if it is not an ongoing issue/defect the owners were aware of and did nothing to correct.

In terms of the next steps in addressing the issue it would recommended that a forensic investigation be undertaken to identify the full extent of the underlying cause/s and then a scope of work provided outlining the detail relating to the required remedial repairs needed to resolve the issue, the Owners Corporation can then move to getting like for like quotes for works needed. Sedgwick naturally can assist with providing these services as required.

Chantell Kennebury Sedgwick P: 08 9210 9103 E: chantell.kennebury@au.sedgwick.com

This post appears in the July 2022 edition of The NSW Strata Magazine.

Question: The hot water system in our burst. Water leaked into the common area hallway and damaged the carpet. Who is responsible for the cost of repair to the common area carpet?

The hot water system burst in our unit. Some of the water got out into the common area hallway. Who is responsible for the cost of repair to the common area carpet?

Our insurance company says we are only covered by landlord contents and therefore this should be covered by strata insurance. The strata company says that as it was a direct result of our hot water service, we are responsible for the cost of repair to the common area carpet.

My concern is, what if my unit burnt to the ground and caused hundreds of thousands of dollars worth of damage to the common area, who pays for that?

Answer: The owner of the hot water system can be liable for the damage to common property.

There are two questions that need to be answered here. Who is responsible? How does insurance respond?

The question of legal responsibility is best answered by a legal practitioner – however, it is my understanding the owner of the hot water system can be liable for the damage to common property.

In relation to insurance, the first option available to the lot owner is to lodge a claim under the legal liability section of your landlords insurance policy. While a landlords policy is intended to cover landlords contents only, there is also a section in the policy for legal/public liability which is designed to cover damage to other persons property that you are legally liable for. I would recommend asking your insurer to specifically provide a response to your claim considering a legal/public liability claim.

Alternatively, a claim can be made under the strata insurance for damage to the common area carpet. The owner of the hot water system may however be responsible for the excess.

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

This post appears in Strata News #560.

Question: Water damage of a unit has been caused by a faulty appliance in a unit above. Who is responsible for the cost of the repairs or replacement to the damaged property and its contents?

Water damage of a unit has been caused by a leak originating in an above unit due to a faulty appliance eg dishwasher hose and not common property like a service pipe. As the water travelled through common property, is the cost of the repairs or replacement to the damaged property and its contents the responsibility of the owners corporation (and its insurer) or the lot owner (insurer) of the above unit?

Answer: The most obvious respondent is the lot owner with the faulty appliance as that is where the leak originated.

The strata insurance policy will cover water damage to building (insured property) associated with a water leak (subject to the policy terms & conditions) and this cover will be provided whether a lot owner is legally responsible for the damage or not.

The question of who is liable for damage not covered by insurance, resulting from a leak is a legal question that is best answered by a legal practitioner or strata manager.

In this instance, the most obvious respondent would be the lot owner with the dishwasher as that is where the leak originated and they are responsible for maintaining their property.

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

This post appears in the March 2022 edition of The NSW Strata Magazine.

Question: The owners corporation engaged a company to repair our leaking shower. During the repair, the company damaged our shower screen. The OC will not fix the screen. Who is responsible?

The owners corporation engaged a company to repair our leaking shower. During the repair, the company damaged our shower screen. Their quote to the OC identified this might happen and that it would not be the company’s responsibility. The OC accepted the quote and engaged the company but will not accept responsibility to fix the shower screen. My insurer says it’s the OC’s responsibility.

Answer: The owners corporation can only be responsible for damage where the owner can demonstrate it is their legal responsibility.

The question is unclear whether the damage was repaired as part of an insurance claim or out of owners corporation funds. It is also unclear what caused the leak and whether the cause had anything to do with the owners corporation and the property it is responsible for (for example the leak happened on common property and caused damage to the lot).

There appears to be two considerations to this issue.

What is covered by insurance;

Who is responsible for repairs outside of an insurance claim

The owners corporation has a responsibility to take out insurance for building (including internal fixtures) in accordance with the strata management act. Damage that forms part of an insurance claim is paid for by an insurance policy that the owners corporation arranges on behalf of owners (and not the owners corporation).

Outside of an insurance claim, in the absolute majority of cases, an owner is responsible for maintenance inside their property including in this case the damaged shower screen. The owners corporation can only be responsible for damage where the owner can demonstrate it is their legal responsibility – for example, the owners corporations negligence caused damage to a lot. If the owners corporation are not legally responsible they can not lawfully pay for repairs inside a lot.

If the damaged shower screen was part of an insurance claim, we recommend the owner apply to the insurer for a variation to the claim.

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

This post appears in Strata News #519.

Question: My bathroom tiles are leaking due to bad renovation by the previous owner. If there is damage in the apartment downstairs, am I responsible?

My bathroom tiles are leaking due to bad renovation by the previous owner, resulting in wall damage in the hallway and terrible mould in the bedroom wardrobe.

I’m not sure if they got strata permission…

If there is damage in the apartment downstairs, am I responsible?

Answer: When a new owner purchases a property they purchase is subject to all the works undertaken.

If the works were renovation by-law works, depending on the nature of the work, if it was major a by-law approval would have been required. This would be registered in the strata scheme’s by-laws. When a new owner purchases a property they purchase is subject to all the works undertaken. This is usually a condition in the contract.

A report could be obtained to determine the cause and liability concerns.

Pierrette Khoury Khoury Lawyers E: pierrette@khourylawyers.com.au P: 0415 459 486

This post appears in Strata News #517.

Question: Our strata manager has notified residents that any damage caused by flexi-hoses bursting is the responsibility of the resident. What insurance do residents need to ensure they are covered?

Our strata manager has notified residents that any case of flexi-hoses bursting is the responsibility of the resident and not strata in terms of damage caused to their and/or other apartments.

What insurance do residents need to ensure damage inadvertently caused by them is covered? Does water damage to carpets / flooring / gyprock fall under buildings or contents insurance?

Answer: In the case of flexi-hoses, the insurer will not cover costs associated with finding and fixing the burst hose, but water damage to the building can be considered.

Generally, strata insurance will cover damage to property insured by the policy, including water damage.

The basic principle is that if you pick the unit up and shake it anything that falls out is lot owners contents + temporary floorings such as carpet, blinds & curtains, appliances that are not permanently attached and paint & wallpaper (NSW) – these items are not covered by strata insurance and should be referred to the contents insurer to make a claim.

Strata insurers will cover the cost to repair water damage to insured property but generally exclude repairs cost related to finding and fixing the leak, as it is generally considered the owners responsibility to maintain their property and such repairs relate to general maintenance or wear and tear. The insurer has exclusions such as lack of maintenance, rust, oxidation, wear & tear, corrosion, gradual deterioration, developing flaws, building defects etc.

In the case of flexi-hoses the insurer will not cover costs associated with finding and fixing the burst hose (this will be the lot owners responsibility), but water damage to the building (insured property) can be considered.

Notwithstanding, insurers may apply an exclusion to flexi-hose claims if there has been a series of such claims. If there is an exclusion applicable to burst flexi-hoses in the policy, lot owners may be responsible for damage associated with the burst flexi-hose. The owner may also be responsible for any excesses associated with claims that originate from their unit.

It is not possible to insure property insured by strata insurance on any other policy – the strata policy should respond to damage to building/insured property. The only other insurance that can be considered is liability cover under a contents or landlords policy which covers legal claims against lot owners for damage to property they do not own (for example the apartment below you).

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

This post appears in the October 2021 edition of The NSW Strata Magazine.

Question: A burst pipe flooded a unit and damaged contents. Removal of the carpet uncovered magnesite flooring. Who pays for what?

A lot owner had a burst pipe from their washing machine which flooded the unit. Contents insurance has covered the carpet removal and damage to furniture. Underneath the carpet was magnesite flooring. Apparently, this falls under strata. Will the strata and owners corporation deny the claim of removal? It’s a very grey area.

Answer: Where there is damage to both building & contents, a claim must be made on both the contents and the strata policy

In instances where there is damage to both building & contents, a claim must be made on both policies (contents & strata).

Lot owners should have contents/landlords insurance with a reputable insurer to cover property not insured by the strata policy and the basic principle is that property inside a unit should be covered by either the strata insurance or contents insurance.

In this instance, contents insurance will cover damage to carpet, but magnesite flooring that is a permanent fixture will be considered building and therefore claimable under strata insurance.

Generally speaking, a lot owner who has contributed to insurance premiums for a policy covering property they own can demonstrate an insurable interest in the policy and therefore is able to make a claim.

Where a claim is made, it falls on the insurer to either settle the claim less the excess or demonstrate the event that caused the damage or the property itself is not covered by the policy.

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

This post appears in the September 2021 edition of The NSW Strata Magazine.

Question: Our hot water system damaged the downstairs neighbour’s ceiling. We can claim on strata insurance, but who pays the excess?

Our tenant didn’t realise the hot water system was leaking until the downstairs neighbour told them her ceiling was wet. We have had the hot water system replaced. No damage was done to our unit. Our Strata Manager now says that we can make a claim for damage to the neighbouring unit under the Strata Insurance but we are liable for the excess of $1000. Is this correct?

Answer: NSW Strata legislation is silent on who is responsible for payment of excess.

NSW Strata legislation is silent on who is responsible for payment of excess.

As legislation is silent on this issue, we firstly recommend reviewing the by-laws of the strata corporation to see if there is guidance on excess in the strata corporation by-laws.

The first question is determining whether or not the owner of the hot water system is liable for the damage. Liability claims are considered on a case by case scenario by solicitors & judges (if the claim ends up in court). It could be argued that the owner failed to maintain and keep maintaining their lot in good repair and thus they are negligent for the damage. On the flipside, it can be argued that the incident itself was not foreseeable and thus the owner used reasonable care to maintain and keep in good repair their lot.

The payment of an insurance excess attracts the benefit principle. It is money paid out to effect a repair, and as such consideration should be given to the person or persons who benefit. In this case, if it is found the lot owner is liable for the damage, you may suggest the lot owner of the lot that has the hot water system, is receiving the benefit. Not because their property was damaged and requires repair, but because the source or cause of the damage arose from their lot. In effect, the lot owner is receiving the benefit of not having to pay the full cost of the damage.

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

This post appears in the July 2021 edition of The NSW Strata Magazine.

Question: An owner left a hose connected to a balcony tap, with the tap turned on. The hose came off the tap and flooded the owner’s and two other apartments. Would this be a claim on insurance through the Strata or does the owner have to claim on their contents insurance?

Answer: As the strata insurance policy is the only policy that the building can be covered, it is therefore appropriate that a claim is made under the strata policy.

The Strata Management Act requires the owners corporation to insure “building” for total rebuild value.

Owners are unable to insure their building as separate policies and this is due to the basic principle that you can not insure part of a building. A strata policy covers “sudden & accidental” damage and there are no specific exclusions in strata policies referring to negligence by a lot owner (although some policies may have conditions related to intentional & deliberate damage damage).

As the strata insurance policy is the only policy that the building can be covered, it is therefore appropriate that a claim is made under the strata policy.

Damage to contents items such as carpet, furniture etc would need to be claimed on each lot owners contents or landlords insurance policy.

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

This post appears in the April 2021 edition of The NSW Strata Magazine.

Question: An outside blockage flooded my laundry. Strata has suggested I claim small items from my own contents insurance. Is this correct?

My laundry flooded because of an outside blockage. Strata initially told me to list all the items damaged in order to get reimbursed. Besides the floor, cabinets and cupboard damages, I’m also asking for smaller items such as bed sheets, clothes, cleaning products, etc to be replaced.

They have replied that the smaller items are not covered under the strata’s insurance and I will need to lodge a claim under my own contents insurance for these items.

If it’s their fault, why should I use my own insurance? What if I’m not insured? They caused the problem due to lack of maintenance, so shouldn’t they cover all the damages?

Answer: If the owner believes the owners corporation are at fault for the damage to their property, the recommended course of action for the owner is firstly to contact their contents insurer to lodge a claim.

The Strata Management Act requires the Owners corporation to insure “building” specified under the act. Lot owners contents items such as bed sheets, clothes, cleaning products are not covered by the property damage section – it is therefore recommended contents insurance is taken out to cover these items.

The only way a claim for damage to property not covered as “building” can be considered under strata insurance is a public liability claim made against the owners corporation. For a claim to be successful would need to demonstrate that the owners corporation were legally liable for the loss sustained. A common claim is under a public liability policy is negligence, being that the owners corporation had a duty of care and they breached that duty of care.

If the owner believes the owners corporation are at fault for the damage to their property, the recommended course of action for the owner is firstly to contact their contents insurer to lodge a claim. When lodging the claim, the owner should explain to their contents insurer why they believe the owners corporation are at fault.

The contents insurer should then lodge a claim and conduct the repairs on behalf of the owner and charge the owner an excess prior to repairs starting.

At the end of the claim the contents insurer will determine if the owners corporation are liable. If they believe there are grounds to suggest the owners corporation are liable, the contents insurer may then pursue recovery against the owners corporation who can refer the claim to the strata insurer under the liability section of the policy. If the contents insurer is successful in recovering costs in the absolute majority of cases contents insurers will refund the excess (the owner should check with their insurer that they will refund the excess upon recovery of the claims costs). If the contents insurer does not believe the owners corporation is liable or they are not successful in recovery against the owners corporation the excess will not be refunded.

Alternatively the owner can pursue a recovery against the owners corporation. To do so the owners will need to submit a letter of demand to the owners corporation. A letter of demand should contain:

A description of incident and date; Why you believe the owners corporation are liable; A summary of your costs (such as quotes or invoices for repair); Bank Details of where a settlement can be made.

While the standard of care imposed on an owners corporation is high, it is not unlimited. With regard to the question of who is liable for the damage this is a legal question that is specific to the circumstances of the claim and best answered by legal professionals. It should be noted that a leak from a pipe on owners corporation property does not necessarily mean they are automatically liable. Common defences strata insurers (on behalf of the owners corporation) have is in relation to the question of “negligence” can include “the owners corporation had no prior knowledge of the leaks identified prior to being notified by the lot owner and any leak would be from an unforeseen cause with no contribution from the owners corporation. There is no indication the owners corporation could have done anything differently in order to have better mitigated loss of the lot owner, therefore they were not negligent in their actions and therefore would not be found negligent under common law”.

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

This post appears in the April 2021 edition of The NSW Strata Magazine.

Question: My car was parked in my allocated parking spot. Storms caused flooding recently and my car has been written off due to damage. Should Strata accept the liability?

My car was parked in my allocated parking spot. It got flooded over the weekend and my car was under the water for a few hours. In the end it was written off.

It turns out that the storm water pump wasn’t working, and the strata doesn’t have any maintenance report. However, strata are asking me to provide the evidence to their insurance broker to say why I think it should be strata at fault, and they should accept the liability.

Can you please help me out, as I think it should be black and white that it is a strata issue, and they should accept the liability.

Answer: It is our recommendation that a claim is made on the policy where the property is insured. In this case the lot owner’s car insurance.

Where a lot owners property is damaged and the owner believes the Owners Corporation is responsible for the damage, it is our recommendation that a claim is made on the policy where the property is insured. In this case the lot owner’s car insurance.

The benefit in doing so is the car insurer’s primary responsibility is to repair the vehicle. After repairs are completed, they will seek to recover from the owners corporation if they believe the owners corporation are liable. Most car insurers will refund the excess if they are successful in a recovery against the owners corporation.

The other option is to pursue a recovery directly against the owners corporation – we do not recommend this option because:

You are responsible for the recovery process – including any legal actions that may be required;

The liability insurer’s primary responsibility it determining liability and this can take time – repairs through car insurance will be much faster as the insurers number one priority is their customer;

You are responsible for quantifying costs (i.e. getting quotes);

If the liability insurer can successfully demonstrate the owners corporation are not legally responsible, you need to start the claim process with your car insurer all over again.

If you decide you want to pursue recovery against the owners corporation you will need to submit a letter of demand to the owners corporation. A letter of demand should contain:

A description of incident and date;

Why you believe the owners corporation are liable;

A summary of your costs (such as quotes or invoices for repair);

Bank Details of where a settlement can be made.

Liability claims are considered on a case by case scenario by insurers, solicitors & judges (if the claim ends up in court). Claims are never black and white and are considered on a case by case basis.

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

This post appears in the December 2020 edition of The NSW Strata Magazine.

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Read next:

Are you interested in more information your unit owners insurance or information particular to strata legislation in NSW? Visit our Strata Insurance OR NSW Strata Legislation pages.

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Are you not sure about some of the strata terms used in this article? Take a look at our NSW Strata Glossary to help with your understanding.

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