A breach of professional duty: Do you understand the risk?

Owners Corporation (OC) Committees are within their rights to proceed with litigation against their Strata Manager for a breach of professional duty if they believe the professional services provided are directly responsible for a financial loss incurred by the Owners Corporation.

While the breach may merely be an error in judgement or an oversight, Strata Managers and their firms must ensure they have adequate insurance protection to secure their financial position and comply with legal requirements.

Professional Indemnity Insurance for Strata Managers is a legal requirement.

To safeguard you and your business against alleged or actual breaches of your professional duty, Professional Indemnity (PI) Insurance is essential to provide protection against financial losses incurred should legal action be taken against you or your strata management business.

Aside from being a business necessity, PI Insurance is also a legal requirement – the Owners Corporation Act of 2007 requires all Strata Managers to acquire and maintain PI Insurance.

Want to find out more about the actions that could constitute a breach of professional duty? Click here to read our article.

A breach of professional duty in context.

The example below demonstrates how a Strata Manager can fail to uphold their professional duty and, as a result, be directly responsible for a financial loss impacting the OC. Note: all names and figures in this article have been changed to protect the identities of parties involved.

Strata Management company, Strata Mate Pty Ltd was looking after a Commercial Strata complex in an industrial area, with an insurance value of around $10,000,000. During their tenure of ten years, Strata Mate had been given a standing order from the OC Committee of the Commercial Strata complex to renew directly with SOSI Insurance every year, and to allow automatic CPI increases to the Sums Insured.

As is common practice, the Strata Manager at Strata Mate was paid a commission by SOSI Insurance for referring the business to them.

Breach of professional duty standout box

After a few maintenance issues were not resolved to their liking, the OC Committee of the Commercial Strata complex made the decision to terminate their contract with Strata Mate, and in due course, Strata Mate was replaced with Starlight Strata Pty Ltd.

Upon their appointment, Starlight Strata initiated insurance renewal quotations with Insurers other than SOSI Insurance, and presented them to the OC Committee. One of the new quotations presented was from a new strata underwriter, and was 40-50% cheaper than what the OC Committee had been paying for the last ten years under the management of Strata Mate.

The OC Committee estimated that over the ten year period during which time Strata Mate managed their property, the total value of the differences in premiums paid was more than $50,000. In light of this, they decided to initiate legal proceedings against Strata Mate for the difference in ‘overcharged’ insurance premiums.

Strata Mate reported the matter to their PI insurer, who advised that even if the claim failed in court and there are no damages required to be paid for the perceived financial loss the OC claims to have suffered, Strata Mate’s PI Insurance policy could still respond for payment of the legal costs incurred to defend the claim.

What are the key learnings Strata Managers can take away from this example?

1. Get alternative quotes or renegotiate terms

Strata Mate could have avoided this situation by presenting a selection of quotations to the Committee for approval, or by negotiating terms with SOSI Insurance to get better rates for their client.

2. Three or more quotes from different insurers

If you are only using one insurer for your Strata Insurance quotes, you could be at risk of a similar claim against you. As part of our service model, Whitbread ensure that Strata Managers are provided with a minimum of three quotes at renewal each year.

3. PI Insurance is a legal requirement for Strata Managers

PI Insurance is the best solution to protect against claims of professional negligence. Any company or individual providing professional advice or services can be held liable for financial loss arising from errors or omissions committed by themselves or their employees. It is a legal requirement for Strata Managers to have this cover.

Use a specialist Strata Insurance Broker.

Whitbread can help alleviate the legal burden of your professional duties by;

  • providing professional insurance advice and assistance based on decades of experience,
  • sourcing quotes and negotiating terms with insurers,
  • explaining and comparing policies, including any special risks you need to be aware of,
  • alerting you to any new or existing legislative requirements you need to adhere to,
  • handling claims and acting as your client’s advocate with the insurance provider.

Whitbread understands the risks faced by Strata Managers and can arrange competitive Professional Indemnity Insurance policies to suit your needs.

For more information, or a quote for Professional Indemnity Insurance, contact one of our Professional Indemnity experts:

T | 1300 424 627
E | info@whitbread.com.au



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This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.

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