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The 1-2-3 Approach of Sectional Title Insurance (updated)

Sectional Title insurance mainly involves three obligatory areas of risk: Buildings Cover, Liability Cover and Fidelity Cover. A fourth segment can arguably be added: any other insurance pertaining to the buildings that the trustees deem required or by way of a special resolution by the owners.

For the purpose of this blog, let’s focus on the 1-2-3 approach:

  1. BUILDINGS: The Sectional Title Scheme Management Act, its regulations and prescribed management rules sets out the required insurance events that the body corporate needs to insure against with regards to the buildings and all improvements to the common property.
  2. LIABILITY: We often find buildings with R1 million or less – sometimes none – liability cover. Prescribed Management rule 23.(6) refers to the need for the body corporate to have liability cover for a minimum cover amount of R10 million 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: Previously, this was the most overlooked and misunderstood area. Prescribed Management Rule 23.(7) provides that trustees should ensure that a general meeting of owners 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, subject to the minimum amount as set out in the Community Scheme Ombud Services (CSOS) Act. 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 existing sectional title buildings policy fidelity section suffices.

A final 4th area: OTHER could be added. Insurance needs, additional liability cover for gym equipment usage or vehicle cover (for example) may be needed.

The key is to work with sectional title advisors who understand sectional title. Any advisor or broker can provide buildings insurance but not many understand this more complex environment.

More detail on the pieces of legislation which affect insurance and more specifically, this approach, can be found in The Sectional Title Insurance Guide.


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.