Duplication vs dual insurance in sectional title schemes: What every owner should know

In the world of sectional title insurance, a surprisingly common issue arises when owners unknowingly insure what’s already covered, and sometimes, they intentionally do so. To make sense of this, we need to separate duplication of insurance (accidental) from dual insurance (intentional), particularly under the Sectional Titles Schemes Management Act 8 of 2011 (STSMA).

Let’s break it down the way we do to better understand the two scenarios.

When does duplication of insurance happen?

The common scenario is where an owner of a sectional title unit, acting in good faith, insures their unit under their buildings cover (typically via a standard homeowner’s policy). What they may not realise is that the body corporate already has a buildings policy in place, covering all sections and common property as required in terms of the STSMA.

In terms of Section 3(1)(h) of the STSMA, the body corporate is legally obliged to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed.

This includes individual sections, common property and possibly other risks otherwise included by the insurer or requested by owners by way of a special resolution.

So, unless the body corporate has failed in its duty (which would be highly irregular), the unit (the section plus its undivided share in common property) is already covered.

What should happen when duplication is discovered?

Once it’s discovered that an owner’s private insurer has been covering a unit already insured by the scheme:

The owner should cancel the private policy immediately.

The private insurer may refund premiums, but in a non-sectional title environment, this would usually only be 50%, or proportionately, for the overlapping period. This is because the risk technically existed, and a policy was active, even if duplicated. The risk and premium would thus be shared proportionately.

In the case of a body corporate, the insurer won’t and cannot refund premiums since their cover applies to the whole scheme and cannot be portioned out section by section. We say that this egg cannot be unscrambled. There is an important distinction in that the scheme’s policy cannot be “replaced” or cancelled section by section. Insuring the entire body corporate is required, and all owners contribute through levies regardless of individual preferences.

If you had dual insurance on a freehold home (i.e., not in a sectional title), insurers would typically refund premiums pro rata once duplication is discovered, possibly even backdated in full if no claim occurred. Claims are also often pro-rated.

Dual insurance

Dual insurance is seen as being somewhat different from duplicated insurance by way of intention. It occurs when the same risk is insured under two valid policies, and both are aware of each other (or should be). This can be intentional or unintentional but should be intentional per below.

In sectional title schemes, Section 14(1) of the STSMA clarifies:

“…an owner may obtain an insurance policy in respect of any damage to his or her section arising from risks not covered by the policy effected by the body corporate.”

So, owners can take out additional insurance, but it should be complementary (not overlapping) for specific exclusions, not for general buildings cover otherwise already covered.

This provides a safety net in that those owners, notwithstanding the schemes cover, can be certain that specific coverages are in place. Owners may seek to further cover their sections where certain shortfalls are suspected or where the entire scheme policy is in doubt or even cancelled.  For example, the scheme’s insurer may have applied a blanket excess of R50,000 for water pipe-related damage, however, an owner may have replaced all their water pipes because of issues and thus seek full cover. The owner then takes out their own buildings section cover, which will include the full cover required.

We suggest that this cover only be taken out where necessary, as dual insurance can cause complications. One certainly does not get paid out twice, even if one has paid two premiums. Owners will find themselves paying two premiums for one outcome. At claims stage, contribution clauses kick in, and insurers split claims, very rarely a smooth process. Delays and disputes are common under these circumstances.

In conclusion

Duplication of insurance in sectional title schemes is typically unintentional and unnecessary, most often stemming from a lack of awareness that the body corporate is already legally responsible for insuring all sections and common property. It also frequently arises when a personal insurance adviser, unfamiliar with sectional title, includes buildings cover without properly assessing the client’s existing cover under the scheme. In such cases, we strongly recommend that owners request a full refund of premiums from their personal insurer, as the additional cover was unnecessary and improperly advised.

True dual insurance, in which both policies intentionally cover the same risk, is not unlawful. However, it is typically inefficient, leads to administrative delays, and can unnecessarily complicate the claims process. Unless there is a compelling reason for additional cover, owners are encouraged to proceed with caution and to always consult the scheme’s appointed broker via the managing agent or trustees before taking out any personal building insurance over their section.