Responsibility for insurance excesses

Owners of a section or the body corporate pays the excess (first amount payable) depending  on the rules of the body corporate, resolutions passed and where the damage occurred.

What is an excess or first amount payable?

It is the first amount payable of the expenses, i.e. the amount or part of the loss that the insured has to pay before the insurer settles the rest of the cost. This is an arrangement that was contractually agreed to by both the insurer and the insured.

In sectional title, policy schedules have basic excess structures for certain losses, for example, a R1,000 basic excess plus R2,500 for laminate floor losses. Geyser excesses usually also differ.

The body corporate is the insured and trustees are elected to deal with the insurance matters.  Prescribed rules place an onus on the trustees to negotiate “premium, excess and rate” and therefore, they need to find the best overall excess structure for the owners.

As the purpose of an excess is to manage claims and reduce premiums, a certain amount of excess should be carried by owners where the responsibility for maintenance and preventative measures are under their control.

Towards the end of 2008 prescribed rule 29.4 was introduced to make the owner responsible for excesses pertaining to damages to their section.

The rule states:

“The owner of a section is responsible for any excess payment in respect of his or her section payable in terms of a contract of insurance entered into by the body corporate: provided that owners may by special resolution determine that the body corporate is responsible for excess payments in respect of specified damage.”

Firstly, ensure that this rule actually applies to your complex. Perhaps prescribed rules do not apply and/or your body corporate has already implemented / filed a rule specific to who should pay the excess.

Assuming that owners in your body corporate are subject to prescribed rules, we recommend that a suitably worded special resolution be passed and it be noted that excesses for certain events/ damages are for the body corporate’s account. Such an example is damage to sections as a result of roof failure/storm damage.  Top floor sections often bear the brunt of roof leaks or storm damage therefore such owners should not always need to carry those excesses.

Trustees need to take particular care when applying the excess to section owners in the event of a multiple claim (a number of sections damaged in one event) and where cumulative excesses apply (say R10,000 excess for flood damage). Excesses are usually shared in proportion to the damage.

 

Author:  Mike Addison, Addsure

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