Community schemes, liability and prescription

Trustees and managing agents need to be acutely aware of the prescription and the importance of reporting incidents occurring on common property to the insurer.

Prescription period

The prescription period can be defined as the time limit legally allocated for the making and ending of certain rights, i.e., the time limit after which an action or debt is no longer valid or enforceable.

In the context of a property owner’s liability, a claimant will only have a limited time (normally three years) in which to commence legal proceedings to recover the loss from the wrongdoer, usually from the community scheme.

It could be longer than three years, such as in circumstances where the plaintiff is only aware sometime after the event that they have been wronged.

All too often, we hear of an injury occurring on common property, and nothing is reported. For example, someone falls down a flight of stairs where there is inadequate lighting, no handrail and loose tiles. The person is taken away in an ambulance with serious injuries. Nothing further is heard about the incident until a year later, when a summons arrives.

The injured party may have been in a coma or only sought legal advice after recovering from the trauma and realising their financial predicament. Perhaps the injuries are such that the plaintiff is no longer able to carry out their usual occupation and will be short of income.

The claimant will have three years from becoming aware that they have been wronged to claim. This means that you also will not be able to just close the file after exactly three years.

Advising the insurer

It is important that the trustees immediately advise the insurer of any incident or occurrence on the common property that could result in such a claim. Very often, speedy action on the part of the insurer could mitigate such a claim or reduce the liability.

Early advice will better position the insurer to investigate the circumstances while all evidence is available and strengthen their case in the event of needing to defend the scheme against legal action or, under certain circumstances, reach an early settlement.

We call this claim intimation, i.e. the action of making the insurer aware of the incident. We suggest completing a claim form (only the trustees or managing agent – never the claimant) and marking the form boldly CLAIM INTIMATION. This way, the insurer is made aware of the claim, not necessarily registering a formal claim until summons or further demand is received.

Consequences of failing to advise the insurer

Failing to advise the insurer will likely cause the insurer to reject the claim and not protect the defendant (the body corporate). As a result of delayed reporting or intimation, the insurer can be accused of being prejudiced, as they could have deflected some or all liability if they were aware of this event earlier.  Most insurers make it a condition of indemnity that they are advised immediately of any incident or occurrence which may result in a claim being made against the scheme.

Failure to report such incidents timeously not only jeopardises the insurer’s ability to defend the scheme but could also leave the trustees exposed to personal liability for negligence. Trustees and managing agents carry a duty of care to act in the best interests of the scheme, and this includes taking swift, proactive steps when an incident occurs. Good governance and sound risk management start with early notification – protecting both the body corporate and its trustees from potentially devastating consequences down the line.