Buildings insurance policies & sectional title schemes

Considering various definitions and pieces of legislation affecting sectional title 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 Sectional Titles Scheme Management Act 8 of 2011 (STSM Act) defines a building differently from 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 type wordings have been used where the building definition is similar but refers to exclusions rather than inclusions.

One of the policy wordings 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
• Hedges
• 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, movable 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, must be stated correctly. If the buildings defined in a policy extend over to another property or over several plots (or erven), note that all the erven are included as the insured properties, or at least to make sure that the address is indicated. Take note of servitudes over municipal or leased property. Encroachments are more common than one realises.

Wooden structures

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. 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 shortfall. When a trustee sends a sectional plan of a wooden (or partly wooden) building to the broker or insurer and instructs them to place cover without anyone realising that it is wooden. The buildings policy is then issued, but at the claims stage after a fire, there would be no cover.

Thatch

Where one can obtain thatch cover, most insurers will apply a loading to the rate if a thatch lapa is larger than 20 sqm 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.

Trend towards all-risk type wordings

Over the past ten to fifteen years, all-risk policies have become the norm. In these policies, the wider definition of the building still largely 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 of that damage. Although the claimant (insured) must present their claim unless the policy states otherwise, the onus is on the insurer to disprove the claim, rather than the onus being on the insured to prove the claim.

Summary

In essence, all-risk type policies generally provide similar cover and follow similar processes to perils-based policies. However, they may allow for a broader scope of claims in situations where sudden damage occurs and is not specifically excluded.

The Sectional Titles Schemes Management Act, its regulations, and the prescribed management rules outline the minimum insurance requirements. It is the responsibility of the trustees, working alongside a well-versed managing agent and advised by a suitably qualified and experienced insurance advisor, to ensure that the chosen insurance product complies with these requirements and adequately meets the practical needs of the scheme. Written annual advice is essential.