Insurance of Sectional Title units

It is a common misconception among sectional title unit owners that movables such as furniture and curtains, as well as buildings, common property, and fixtures within sections are covered by the body corporate's insurance policy.

Martin Bester, managing director of Intersect Sectional Title Services, a sectional title specialist company based in the Western Cape, offers some advice on common issues encountered with the insurance of sectional title units.

What does the body corporate insurance policy cover?

Prescribed Management Rule 29(1)(a) places a duty on the trustees to ensure that the buildings and all improvements to the common property are insured, whilst the onus for insurance on moveable items falls on the individual residents.

Bester advises that the body corporate insurance policy covers the building(s), all fixtures and fittings and liability and indemnity insurance against perils that are specified in the Act, as well as other perils that the members may decide are required: "Perils such as lightning, storm, flood, fire, earthquake, bursting geysers or hot water apparatus and resultant loss of rent etcetera are covered."

How are excesses determined and who pays them?

"The excess is predetermined and negotiated with the body corporate's insurance broker or insurer," says Bester. "Different excesses apply to different perils and the more a particular peril is claimed for the higher the premium and/or excess is likely to be at renewal.

"Excesses for claims relating to the common property are payable by the body corporate. However excesses payable in terms of sections are payable by the owner of the section suffering the loss."

Prescribed Management Rule 29(4) says that the owner of a section is responsible for any excess payment in respect of his or her section, payable in terms of a contract of insurance entered into by the body corporate, provided that owners may by special resolution determine that the body corporate is responsible for excess payments in respect of specified damage.

According to Bester, some body corporates have amended their rules to deal with the application of excesses, but, as so many cases are not cut and dry, the application of the rule that each owner is liable for an excess if he or she suffers a loss seems to remove ambiguity and arguments from the equation. 

Can I insure my unit for more than the body corporate is providing?

Bester says that the answer is yes. "The members approve the insurance replacement values at each AGM. However the body corporate only insures at an agreed rate, therefore if the owner feels that the sum insured for his or her section is too low, usually as a result of internal improvements, then he or she may increase the sum insured via the body corporate's policy. However he or she will be liable for the difference in the premium as a result thereof."

How is the sum insured calculated?

"Although the onus is on the trustees to ensure that the building(s) is insured to the full replacement value, the value needs to be determined, and for this a professional valuation is recommended, preferably by a qualified quantity surveyor. However, when a scheme is established, the trustees will apply a replacement value to the building(s) and improvements to the common property," says Bester.

"At Intersect we advise our clients to have the buildings and improvements professionally valued every three to four years, so as to ensure that the replacement values applied are reasonable and accurate."

"Failure to have the building(s) and common property improvements valued could lead to over- or under-insurance, both of which have negative connotations," concludes Bester.

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