Don’t neglect your insurance

Insurance is an extremely important matter for Sectional Title bodies corporate, owners and trustees, but is all too often played down or left off the annual general meeting (AGM) agenda altogether.

“The Sectional Title Act requires that the buildings and all improvements to the common property in an ST scheme should be insured to their full replacement value against a number of disasters,” says Berry Everitt, MD of the Chas Everitt International property group.

“These include fire, riot, civil commotion, labour disturbances, natural disasters such as floods and earthquakes, water damage from burst pipes and damage through housebreaking.

“And at the very least, copies of the actual current insurance policy should be available at the AGM, and the trustees and managing agent should confirm for the minutes that the premium payments are up to date.”

Writing in the Property Signposts newsletter, he says that in addition, the members should be asked to approve a schedule of values for which the sections and improvements are to be insured in the coming year.

“But even if they are not presented with such a schedule, it is vital for every owner to insist that the replacement value of his or her unit is regularly updated. The reason is that if a unit is under-insured, the insurance company will invoke the ‘average’ clause included in most body corporate insurance policies.”

The implication of this, Everitt explains, is that an owner will then be deemed to be their own insurer for the shortfall between the amount the unit is insured for and the amount it actually costs to replace or repair that unit.

“If, for example, the actual cost of replacing the unit is R800 000 but the amount for which the unit is insured on the replacement schedule submitted to the AGM is R750 000, the under-insured amount of R50 000 becomes the owner's liability.”

What is more, he says, body corporate members should insist that an independent, qualified person or company performs the replacement valuations. “The trustees cannot and should not be left to make their own decision about what the replacement value of the complex or units should be.”

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