Insurance in Strata

Does an owners corporation need to take out insurance cover and if so, what for?

It is important to protect an owners corporation and the personal assets of all lot owners through insurance cover. There are laws in Victoria which set out the minimum insurance required but an owners corporation may also take out extra cover depending on their circumstances.

The minimum insurance required for an owners corporation is:

reinstatement and replacement insurance of buildings on common property
public liability insurance for the common property

This is not the case for two-lot subdivisions where it is not a requirement to take out this insurance but as an owner it is important to still consider your legal and financial liability risk.

Reinstatement and replacement insurance

According to Consumer Affairs Victoria common area building is defined as:

a structure and part of a building or structure
walls, out-buildings, service installations and other things attached to the main structure
any pipes or cables used to provide services to a party other than the owners corporation or its members (shared services)
a boat or a pontoon permanently moored or fixed to land.

The insurance must cover:

• Replacement, repair and rebuilding of the damaged property
• Costs of demolishing and removing debris from the site
• Other costs such as employing an architect or surveyor
• Shared services
• Replacement of services and structures such as driveways and fences.

Valuations of buildings are required to be carried out every five years and a report of valuation must be reported to at the next general meeting following the issuing of the report.

Public liability insurance

An owners corporation must take out public liability to cover for the following:

injury, illness or death of a person
damage or loss of property.

The public liability insurance must cover at least $10 million for the common property.

It is important for an owners corporation to obtain professional advice concerning its level of risk.

Other insurance

There may be other insurance cover the owners corporation decides to take out which must be passed by ordinary resolution at a general meeting.

This may include such items as:

• Office bearers’ legal liability
• Voluntary workers insurance
• Workers compensation
• Machinery breakdown
• Catastrophe insurance
• Legal defence expenses
• Government audit costs
• Appeal expenses
• Common property contents

Professional advice about insurance

Consumer Affairs Victoria recommends that your owners corporation only use insurers approved by the Australian Prudential Regulation Authority (APRA). This industry-funded authority regulates the Australian financial services industry.

An owners corporation should seek guidance about approved insurers, the range of insurance products and the amount of insurance to cover its risks.

An owners corporation manager must disclose to the lot owners if they:

act as an insurance agent offering to contract insurance for the owners corporation
receive commissions from a third party, such as an insurer, for selling that insurance.

These disclosure requirements exist to prevent a situation where a manager may be, or be seen to be, influenced to place insurance policies with an insurer offering the better commission, rather than choosing the best policy for an owners corporation.

At Tideways  we offer full disclosure of insurance  used by buildings we manage an……