Very often this benefit is misunderstood and it creates disillusionment at claim stage. We will attempt to clarify a few prevailing misconceptions with this article.
Insurance policies that provide cover to building owners and individuals who insure their private household contents usually provide cover in the eventuality that the owner or tenant is forced to vacate the damaged apartment following damage by an admitted insured event or peril. Depending upon the policy, the cover amount is usually limited to 25% or 30% of the insured value of the unit damaged. Most policies for sectional title buildings provide for 30% cover to value.
These events or perils are most commonly either fire or flood related. In circumstances where the apartment is deemed uninhabitable, the insurers would consider compensation for expenses or loss under this cover benefit.
It is important to understand that not all or any damage would necessarily render the apartment being uninhabitable. If damages are only partial, or perhaps limited and confined, then the apartment simply cannot be deemed uninhabitable.
In the event of a catastrophic damage event, insurers would, most likely, appoint an assessor to investigate the cause and extent of damages. The assessor will determine if any loss of rent or alternative accommodation can be claimed.
Where an owner or tenant holds private household contents insurance cover, the claim for this loss must be directed to that insurance policy first. The buildings policy will only respond where it can be shown that no other policy covers this loss.
How do you prove ‘loss of rent’?
As owner of an apartment, you will hold a signed lease agreement with your tenant. This document confirms the contractual term and rental amount to be paid monthly. On the strength of this document, a loss can be formulated depending on the period it would take to repair the apartment. This period is either known from the contract period or negotiated where cash settlement agreed.
What alternative accommodation can be expected?
Where an apartment is guttered to the extent that the owner occupant can’t stay there, the insurers will cover any reasonable expense incurred for accommodation in a similar furnished apartment and only for the period necessary for repair. This benefit applies only to an owner occupant and not for tenants.
If the buildings are insured as residential accommodation and a business income is derived from it by way of short-term holiday accommodation letting operations, most policies will exclude any claim for this loss of income. If you operate a business, you are expected to insure any loss of income in the name of the business. Very few insurers would admit a claim for business loss where a residential risk applies.
Owners are often caught when their tenant vacates the apartment following a relatively minor water damage event, for example: flooded carpet localised to one room and damp smell affects asthma. The apartment is not uninhabitable and insurers rightly don’t admit any claim. Expectations should be realistic and insurers are only obliged to settle claims that are valid in terms of their policy provisions, definitions and limitations.
Author : Brian Addison
Contact Addsure – The Leaders in Sectional Title Insurance – to get 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