All insurance policies include a clause that states: if you are under-insured, then you cannot expect to receive full settlement of a claim. This is commonly referred to as ‘Average’ clause application.
Total unit sum insured: R800,000 as per policy.
Fire damages unit to repair cost: R400,000.
Actual building re-instatement cost: R1,000,000
Owner therefore only 80% insured.
Insurer may therefore settle claim at 80% of claim.
In this scenario the insurance company is therefore only required to contribute or settle to the amount of R320,000.
How do you prevent under-insurance?
If your trustees have not already engaged with a suitably qualified professional valuer to ascertain the re-instatement value of the buildings, the owners should direct them to do so. The valuation should include allowance for actual building cost, Value Added Tax (VAT), professional fees (architect and engineers costs) and demolition/rubble removal costs.
A proper valuation would also make allowance for inflation cost escalation for the year ahead and for any further period required for re-instatement.
The valuation must include all buildings, including all common property items and related landlord’s fixtures, and fittings of a permanent nature.
It is impossible for a valuer to inspect each and every section (the interior of individual apartments) and therefore a sampling is usually made whereby a few standard apartments would be viewed. Therefore, if any owner has made improvements to their section that are deemed ‘above standard’, i.e. more expensive (e.g. marble tops; imported tiles; high-end, built-in kitchen appliances etc.), they may request the trustees/managing agent to instruct the insurer to place an ‘additional sum of insurance’ to their section.
It remains the owner’s responsibility to inform the trustees of additional improvements to their sections and a trustee’s responsibility to ensure that the Body Corporate buildings (including all common property) are insured for full re-instatement value.
Written by 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 on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069.