Considering various definitions and pieces of legislation affecting community schemes, we draw some attention to certain aspects of buildings cover.
Defining a ‘building’
First, we need to clarify the definition of a building to understand what we are insuring.
The STSM Act defines a building differently to a policy of insurance which states that: ‘‘building means a structure of a permanent nature erected or to be erected and which is shown on a sectional plan as part of a scheme”
A typical definition of a buildings policy is more specific and may state the following: “Buildings shall be deemed to include outbuildings and landlords fixtures and fittings therein and thereon including fitted carpets and lifts with all associated equipment, transformers, motors, boilers, air conditioning, standby generators and walls (except dam walls), gates, posts, fences (excluding hedges) and sporting or recreational structures including but not limited to swimming pools, tennis courts (including floodlights), sauna/spa baths/Jacuzzis and water pumps, pool machinery, borehole motors and brick, tar, concrete or paved roads, driveways, parking areas, paths or patios, all the property of the insured and situated as stated in the schedule. Unless otherwise stated in the schedule, the buildings and outbuildings shall be constructed of brick, stone, concrete or metal on metal framework and roofed with slate, tiles, metal, concrete or asbestos.”
The wording is evolving and changing constantly
More recently, the newer all risk wordings have made been used where the building definition is similar but refer to exclusions rather than inclusions.
The CIA all risk community Scheme policy refers to a building as:
“.. means buildings and all outbuildings thereto, constructed of brick, stone, concrete or metal on metal framework, roofed with slate, tile, concrete or any other material specifically stated in the schedule, and anything else permanently built, constructed or installed on your property that you own or are legally responsible for, and tenants fixtures and fittings (if stated in the schedule to be included), at the situation stated in the schedule.
However, building does not include:
- Dam walls
- Above-ground portable swimming pools
- Marina, wharves, docks, jetties and pontoons used for commercial purposes or to provide fuel distribution facilities
- Mobile air conditioning units
- Gardens, plants, lawns, trees, gravel, pebbles, rocks, stones, soil, sand, bark or mulch except as covered under extra cover on page 13
- Any property belonging to tenants or for which they are responsible
- Unfixed, moveable floor coverings, curtains and window coverings inside a unit;
- A new building under construction
Some important points should be noted from the insurance policy definition:
The buildings insured are the buildings at the risk address stated in the policy schedule
Note the following: “…and situated as stated in the schedule.” The risk address i.e. the physical address of the property itself will need to be correctly stated. If the buildings defined in a policy extend over to another property or over a number of plots (or erven), note that all the erven are included as the insured properties; or at least to make sure that the address is clearly indicated. Take note of servitudes over municipal or leased property. Encroachments are more common than one realizes.
Wooden structures or thatch need to be dealt with carefully. It cannot be assumed that wooden structures and thatch roofs will be covered automatically. They are not according to the definition above. Non–covered items such as thatch need to be dealt with separately, i.e. the body corporate trustees need to make it clear to the insurer that the additional risks need to be covered or added to the policy, even if for an additional premium.
Looking at the STSM Act definition against the typical policy wording definition, one can anticipate the short-fall. When a trustee send a sectional plan of a wooden (or partly wooden) building to the broker or insurer and instruct them to place cover without anyone realizing that it is wooden. The buildings policy is then issued but at claims stage after a fire, there would be no cover.
Most insurers apply a loading to the rate if a thatch lapa is larger than 20sqm and closer than 4 metres to the building. It is important to note that owners with thatch lapas need to refer to their brokers or insurer for advice and find out the underwriting requirements under their specific circumstances.
More recently, certain leading underwriting managers have introduced all risk-type policy wordings which further impact on our understanding of the various definitions. In these policies, the wider definition of the building still remains but insurers are more specific as to which items are excluded from cover. What is the difference between “perils based policies” and “all risk policies” in the sectional title environment?
It is our view that the perils-based policy sets out what is defined as a claimable event. If the event experienced by the insured matches the definition, a claim is valid. The insured needs to prove that the event occurred as defined in the policy wording.
On the other hand, the all risk type policy defines damage and then excludes certain causes to that damage. Although the claimant (insured) must present their claim, the onus is on the insurer to disprove the claim rather than the onus being on the insured to prove the claim.
In a nutshell, the all risk type policies offer much the same cover and the processes are much the same as a perils based policy but there may be circumstances not excluded which widens the possibly for a claim where sudden damage occurs.
The Sectional Titles Schemes Management Act, the regulations and the prescribed management rules set out what needs to be covered. The trustees together with a suitably experienced and qualified insurance advisor need to ensure that the selected insurance product meet both the regulatory requirements as well as the actual needs of the community scheme.
Author: Mike Addison, Addsure
Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069