Understanding property owners’ liability cover & trustees’ indemnity

(Updated: 30 January 2025)

In the context of community schemes, particularly sectional title schemes, it is especially important for trustees and managing agents, to understand the difference between property owners’ liability (also known as public liability) and trustee indemnity (or directors’ indemnity). Both types of cover serve important roles in protecting the body corporate and trustees against potential liabilities. Let’s delve into these two coverages, their purposes, and why they are essential.

Property owners’ liability

Property owners’ liability is a mandatory requirement under the Sectional Title Schemes Management Act 8 of 2011 (STSMA), prescribed management rule 23.(6) to be precise. This type of insurance ensures that the body corporate has financial protection in place to cover liabilities arising from certain incidents occurring on the common property.

The rule states:

23.(6)   A body corporate must take out public liability insurance to cover the risk of any liability it may incur to pay compensation in respect of –

(a)  any bodily injury to or death or illness of a person on or in connection with the common property; and

 (b)  any damage to or loss of property that is sustained as a result of an occurrence or happening in connection with the common property, for an amount determined by members in general meeting, but not less than 10 million rand or any such higher amount as may be prescribed by the Minister in any one claim and in total for any one period of insurance

Key points (property owners’ liability)

• The scheme has protection against legal liability if the body corporate is found negligent.
• Coverage for third-party bodily injury, death, or property damage caused by the body corporate’s negligence i.e. where the scheme or its trustees were negligent.
• Most property owners’ liability policies cover claims arising from injury or damage but do not cover pure economic losses.
• Public liability does not cover incidents where negligence is not a factor, meaning it is not a substitute for medical aid or accident insurance.

Example scenario: If a person is injured due to a slippery floor in a common area, and it is established that the body corporate failed to maintain the area properly, a claim can be made under the property owners’ liability policy.

Trustee indemnity

Trustee indemnity, also known as directors’ indemnity, is an extension of the liability coverage that focuses on protecting trustees or directors from financial and economic losses resulting primarily from errors or omissions. This is technically or arguably not a statutory requirement, however, Addsure highly recommends this cover.

Its primary purpose is to cover financial losses suffered due to errors, omissions, or mismanagement by trustees or directors.

Unlike property owners’ liability, it does not usually cover physical injuries or property damage but rather financial losses.

It provides protection if trustees are found to be negligent in their decision-making or failure of duties which causes a loss.

Key points (trustee indemnity)

• Protection against claims arising from financial losses due to trustee errors.
• Covers wrongful acts such as breach of trust, breach of duty, neglect, misstatements, misleading statements, or other wrongful acts committed in their capacity as trustees.
• It must be noted again that this cover is to protect the body corporate, not third-party claimants.
• Typically covers legal costs and settlements.
• Insurers may extend liability cover to include trustee indemnity, subject to certain conditions and limits.
• Trustee indemnity policies can be purchased as stand-alone policies or bundled with other coverages.
• If a trustee is paid for their services, they are considered professional trustees and should purchase professional indemnity cover instead of trustee indemnity.

Example scenario: If trustees approve a construction project that later needs to be demolished due to regulatory violations, the resulting financial loss may be covered under trustee indemnity.

Summary

Property owners’ liability

• Mandatory under the law
• Covers physical damage, injury, or death
• Focuses on negligence related to common property
• Minimum coverage requirement: R10 million

Trustee indemnity

• Optional but recommended
• Covers financial or economic losses
• Protects trustees from liability for errors or omissions
• Recommended coverage: R5 million to R10 million

Important considerations

Liability cover is designed to protect the insured, not the third-party claimant. The insurer will only settle or partly settle claims if negligence can be proven.

Liability cover is an agenda item at AGMs, highlighting the importance of managing agents and trustees understanding the intention of the cover.

Conclusion

Understanding the differences between property owners’ liability and trustee indemnity is essential for managing risk in community schemes. Ensuring compliance with legal requirements and obtaining adequate coverage helps protect the financial interests of the body corporate and trustees alike.