When additional cover is needed

There is often confusion over what cover arrangement requires the mandate of the owners by way of special resolution and what trustees may arrange.

As it stands, the arrangement of additional cover can be divided into 3 categories:

1. Additional cover that trustees may arrange

Prescribed Management Rule 29.1(x) permits the trustees to arrange further cover in respect of the buildings. This would mean additional cover such as subsidence and landslip cover, excess buyback, geyser cover and other additional benefits which may be in the best interest of the owners

2. Additional cover requiring a Special Resolution or Ordinary Resolution

Any other cover aside from cover pertaining to the buildings requires a special resolution per Section 37 of the Sectional Titles Act (Section 3 of the STSM Act yet to be implemented).  The exception is Fidelity cover where an ordinary resolution is required (Prescribed Management Rule 29.2(b) refers).  It is our view that trustees should immediately arrange cover if a serious risk is identified followed by ratifying the insurance arrangement soon thereafter. The whole scheme could be at risk if you have to wait for the next meeting to arrange a special resolution.

3. Owners requiring additional cover

Section 37 of the Sectional Titles Act (Section 3 of the STSM Act yet to be implemented) provides that owners may by special resolution determine other risks to be insured. In other words, the same piece of legislation allows for owners to direct trustees to insure some other risk.

Owners can personally request the body corporate to arrange an additional sum of cover for their section.  Prescribed rule 29.1(d) refers to paying of a premium to achieve this. The way to deal with this is simple: the owner needs to send a request in writing to the trustees to increase cover, who will instruct the insurance broker to arrange the additional cover. The schedule of replacement value is adjusted to accommodate this, the policy endorsed and the additional premium recovered from that owner.

The body corporate should also see to it that improvements made to Exclusive Use Areas are covered, such as swimming pools, structures etc.  These additional items are added to the common property (an EUA is common property, not a part of a section) but the additional cost for that premium also gets recovered, either in the same way as additional sums for sections or by way of the EUA contribution towards EUA maintenance and insurance.

Section 45 of the STA / Section 14 of the STSM Act make a special provision for further cover (dual insurance) where owners may arrange their own cover over and above the body corporate’s cover. This does not mean alternative cover but cover notwithstanding the statutory Sectional Title cover arranged.  This is rarely done but there can be instances where owners are more comfortable doing so, for example where excesses on the body corporate policy is too high or premiums are not being paid by the body corporate.

 

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 (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069