About fidelity insurance: CSOS Regulation 15 in layman’s terms

Community schemes in South Africa, including sectional title complexes, homeowners’ associations, and share block schemes, are legally required to protect themselves against the financial risks of fraud and dishonesty.

Regulation 15 of the CSOS Act mandates these schemes to maintain adequate insurance coverage, ensuring that the funds entrusted to them are safeguarded from potential misuse by individuals involved in the scheme. We unpack the sub regulations here and explain in the video below:

Subsection (1):

Every community scheme must have insurance to cover the loss of money that belongs to the community scheme or for which it is responsible. This insurance is meant to protect the owners in a scheme against acts of fraud or dishonesty committed by certain people, referred to as insurable persons.

Subsection (2):

The term “insurable person” refers to specific individuals who can be insured against under the scheme’s policy. This includes members of the scheme’s executive committee, employees or managing agents who have control over the community scheme’s money, and contractors or employees working under the direction of a managing agent who may have access to the scheme’s funds.

Subsection (3):

The minimum amount of insurance coverage required is determined by adding up:

1. The total value of the community scheme’s investments and reserves at the end of the previous financial year, and;
2. 25% of the community scheme’s operational budget for the current financial year.

Subsection (4):

The insurance policy must have certain features: It should provide for the insurer to pay the community scheme for any losses within a reasonable period after satisfactory proof of the loss is provided. It should also not require the community scheme to initiate criminal or civil proceedings against the insured person before receiving payment from the insurer.

Subsection (5):

A community scheme is not obligated to obtain fidelity insurance coverage protecting itself against losses caused by an insurable person if that person can provide written proof that the community scheme’s money is already covered by fidelity insurance that meets the requirements mentioned in subsections (3) and (4). Additionally, the insurer must acknowledge the community scheme’s interest in the policy proceeds and agree not to cancel or withdraw coverage without giving the community scheme at least 30 days’ written notice.

We do not recommend this option and have suggested that this subsection be removed from the statute books.