Sums Insured Q&A

Following a recent valuation of the property of a particular body corporate, we received some interesting questions and would like to share our answers with you here in this blog post:

Once a valuator has submitted his valuation, can it be verified and if so, by whom?  

An insurance broker will assist in arranging a valuation on behalf of the body corporate but ultimately, the valuation is a matter between the trustees and the valuator. The trustees are at liberty to request a second opinion but consider that all costs will be for the account of the body corporate.

What position should the trustees take if an owner wants to lower the insured value of his/her section?

The total sum insured is allocated to sections according to registered participation quotas and at a value determined by the trustees as being the replacement value, according to Section 37 (1) (f) and Prescribed Management Rule (PMR) 29 (1) (a) of the Sectional Title Act. An owner may increase the insured value of his/her section but cannot reduce the insured value in any way.

Is the owner obliged to inform the trustees and/or bond holder that he/she has upgraded the section at some cost? 

PMR 29 (1) (d) specifies that an owner may increase the insured value but the Act does not compel him/her to do so. However, if the owner does not inform them, there will be consequences as a result of under insurance in the event of a claim.

What position should the trustees take if they knew nothing of the improvements? 

The duty of the trustees is to ensure that the property is insured at replacement value. Before the improvements were implemented, the trustees insured the property as such and cannot accept liability where an owner neglects to inform them of any changes so they may arrange additional insurance.

Are the other owners therefore prejudiced?

In terms of PMR 29 (b) (ii) it is clear that the aspect of under insurance (the average clause in the insurance policy)  applies to each section separately and not to the building as a whole.

What “right of access” do the trustees have in these circumstances?  

Section 70 of the Act is very specific on this point: Where a section is destroyed or damaged by an insured peril and the owner is under insured and unable repair the damage, the under-paid part of the loss, the body corporate is entitled to “….remedy the owner’s failure and to recover.…from such owner.”

If you are interested in learning more about this case study, contact us on info@addsure.co.za to arrange a meeting or workshop.

Author : Rian Pienaar

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