You’ve sought professional advice and now the question is; do you take it or do you leave it?
When it comes to determining a building sum insured, disregarding the advice could be detrimental to everyone concerned: the property owner, the Owners Corporation committee and you, the Strata Manager.
One responsibility of an Owners Corporation committee is to ensure the property is insured for full replacement and reinstatement value. A professional property valuer can determine this for the Owners Corporation committee.
Recently, after receiving an updated valuation from a Strata Manager, Whitbread proceeded to arrange renewal terms and comparative quotes based on the higher sum insured in accordance with the valuation.
The property, consisting of 22 residential units, had a current building sum insured of $2,500,000 and the valuation recommended the building replacement cost was actually $5,850,000, a substantial difference!
When the Strata Manager presented the renewal terms, in accordance with the valuation, the Owners Corporation committee voted NOT to increase the sum insured.
We were advised of the Owners Corporation committee’s decision however it would have been a breach of our professional duty for us to action this request.
Doing so could have led to exposures for all involved.
Exposures to the Owners Corporation Committee
According to the Owners Corporation Act 2006 – SECT 59 – Reinstatement and Replacement Insurance, (Page 31 to 32) – legislation requires that a building is insured for full replacement and reinstatement value.
Providing instructions to under insure the property may expose the Owners Corporation committee to an Office Bearers Liability claim.
Exposures to the Property Owner
If the property is underinsured, in the event the building is a total loss, the property owners would be responsible for additional costs in excess of the policy limit.
To put this into context, using the example in the article; if this building was subject to a total loss, each of these lot owners could be $152,272.72 out of pocket!
Exposures to you – the Strata Manager
Any company or individual providing professional advice or services can be held liable for financial loss arising from errors or omissions committed as part of their professional services.
In this example, the Strata Manager could be exposing themselves to a Professional Indemnity claim if the Owners Corporation incurred a financial loss that could be attributed to a breach of professional duty.
As an insurance broker, we have a duty under The Insurance Brokers Code of Practice to abide by the law, which means that arranging insurance for an amount less than specified in the Owners Corporation Act is a breach of our duty as an insurance broker.
Accordingly, Whitbread Insurance Brokers will ALWAYS recommend a building is insured in accordance with the most current valuation.
Whitbread Insurance Brokers recommend that Strata Managers advise their clients to obtain a professional property valuation by a Sworn Valuer every three to five years to ensure the building remains adequately insured, and adjust insurance coverage accordingly.
To speak to one of our specialist Strata Insurance Brokers, please contact our office on 1300 424 627.
This Whitbread insight 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.
