Trustees are often unaware that Sectional Title Insurance is not just about the buildings but actually about 3 obligatory areas of risk. Prescribed Management Rules refer to Buildings Cover, Liability Cover and Fidelity Cover. Arguably, a fourth segment could be added: any other insurance pertaining to the buildings that the trustees deem required or by way of a special resolution by the owners
Let’s focus on the 1-2-3 approach:
1 – BUILDINGS: Prescribed Management Rule 29.1 sets out the requirements that the buildings and all improvements to the common property need to be covered against certain events, as listed.
The Addsure Sectional Title Insurance Guide explains this rule in more detail on pages 5 to 7, an electronic version of which can be downloaded from this website http://dev.addsure.co.za/wp-content/uploads/2014/02/Addsure-Booklet-2011-Sectional-Title.pdf
2 – LIABILITY: We often find buildings with R 1000 000 or less, or sometimes no, liability cover. Prescribed Management rule 29.2(a) refers to the need for the body corporate to have liability cover protecting the owners and trustees against liability in respect of death, bodily injury, illness; loss of, or damage to, property occurring in connection with the common property. The body corporate can usually secure this by purchasing a sectional title policy with this section added, or purchasing a separate liability policy. It follows that trustee indemnity should be catered for as well, either by way of an extension to the liability cover or another separate policy. Take good care here, many policies fall short in their definitions of trustees and have some onerous exclusions. In addition, one must take care when switching from a “claims made basis” policy wording to “an occurring basis” policy wording. Written advice from a suitably qualified insurance advisor is recommended when switching insurers.
3 – FIDELITY: This is probably the most overlooked and misunderstood area. Prescribed Management Rule 29.2(b) provides that the trustees should ensure that a general meeting determines the extent of fidelity cover that needs to be purchased (against the dishonesty of trustees, employees and managing agents). This is not a trustee decision; a general meeting needs to decide on the amount of cover, if any, required. It does not say that a managing agent’s EAAB Fidelity Fund Certificate suffices nor does it say that it’s okay to assume the sectional title buildings policy fidelity section suffices. We are only aware of one underwriting manager which provides some measure of meeting the needs of this rule. In most cases, a separate insurance policy such as FIDCURE is required. Less than 1% of bodies corporate have this cover (our educated guess), yet owners are at substantial risk here. It is our view that trustees who ignore this rule can be brought to task if losses occur and no policy or resolution is in place.
A final 4th area: OTHER could be added. Insurance needs, such as STILUS levy guarantee, additional liability cover say for gym equipment usage or vehicle cover may be needed.
The key is to work with sectional title advisors who understand sectional title. Any advisor / broker can provide buildings insurance but not many understand this more “complex” environment.
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 on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069.