Prescribed rules relating to sectional title insurance require that owners and trustees are insured against liability in respect of the following occurring in connection with the common property:
- Death, bodily injury or illness; or
- Loss of, or damage to property,
Most property owner liability policies or sections cover claims arising from losses occurs in respect of injury or damage.
The property owners’ liability and general liability sections of buildings or commercial policies usually does not cover pure economic losses arising from the body corporate’s errors or omissions or negligence.
The trustees’ indemnity extension or separate policy will provide protection to the body corporate and the trustees from claims arising from to the economic or financial loss caused by the wrongful act of a trustee. Wrongful act usually refers to an actual or alleged breach of trust, breach of duty, neglect, error, misstatement, misleading statement, omission or other wrongful act committed or attempted by a trustee arising from his acting is his capacity as a trustee.
As such, insurers have been extending liability cover to include trustee’s indemnity, albeit subject to certain conditions and limits. In some policies, trustees indemnity is a separate section on its own. In fact, trustee indemnity policies can be purchased as stand-alone policies or together with other benefits.
The prescribed rule applicable states “owners and the trustees” which often creates the incorrect perception that this means that trustee indemnity cover is a requirement.
Read our previous blog about trustee indemnity actually not being a requirement.
In summary:
Property owners’ liability = Death, injury, illness, damage
Trustee indemnity = Economic or financial loss
Examples of liability claims include injury from slip and falls due to body corporate negligence, damage to vehicles due to negligence, injury due to non-compliance of building regulations.
Examples of trustee indemnity claims include losses incurred by an owner due to omission by trustees, incorrect decision or permission by trustees causing a financial loss.
Always remember that the policy is there to protect the insured, not the third-party claimant or plaintiff. The insurer will only settle or partly settle the plaintiff or claimant where negligence can be (or can likely be) proven and thus not viable to defend.
Where a trustee is paid for their services, the trustee is seen by most insurers as a professional trustee and as such should purchase professional indemnity rather than trustee indemnity cover.
Liability is a tricky area for many, especially those who are unfamiliar with insurance. In future, liability cover will be an agenda item at AGMs so it is important that managing agents and trustees understand the intention of the cover.
Author: Mike Addison, Addsure
Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069