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Who should arrange additional cover for sectional title schemes?

insurance cover

(Updated from a blog originally posted on 11 February 2015)

The Community Schemes Ombud Services Act (CSOSA) – with particular reference too Regulation 15 and The Sectional Title Schemes Management Act (STMA) plus its regulations and rules – refers to the items that need to be covered as well as how to deal with additional cover required.

This legislation deals with three main areas of risk namely, the buildings, liability and fidelity.

  1. Buildings

STSMA Sub Section 3.(1)(h) Functions of the body corporate speaks to insuring the buildings against fire and other risks that may be prescribed. The prescribed risks are listed under Regulation 3.  Sub Section 3.(1)(i) follows with “to insure against other risks as the owners may by special resolution determine”.

One deduces that any additional building insurance (over and above that which is prescribed) needs to be arranged with the support of a special resolution.

As prescribed, the AGM agenda provides for Prescribed Management Rule (PMR) 23(8) to be considered but a special resolution needs to support it.

Therefore, the body corporate needs to approve any building insurance over and above that which is prescribed by way of special resolution and as listed as an agenda item.

In our view, this is somewhat restrictive and could put a body corporate at risk; for example, the body corporate acquires a new motor vehicle but cannot insure it until a special resolution is obtained.

One could argue then that in order to insure geysers for repairs and maintenance a special resolution will be required, if not a rule change, if one considers PMR 31 which deals with the maintenance and replacement of geysers.

Section 14 (STSMA) allows an owner to dual-insure their section for risks not covered by the body corporate’s policy, ensuring that their risks are covered on a wider basis.

It is important to not confuse Additional Cover with Additional Sums Insured, which is a different subject and dealt with in PMR 23.(1) (b) which provides for an owner being able to increase the sums insured (replacement values) of their section.

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 for the owner to write or email a request to the trustees to request an increase in cover, who will instruct the insurer or broker to arrange additional cover. Following this, the schedule of replacement value is adjusted, the policy endorsed, and the additional premium recovered from that owner.

In addition, the body corporate should ensure that improvements made to exclusive use areas (EUAs) are covered. These additional items are added to the common property (EUA is counted as common property and not a part of a section) but the additional cost for that premium is recovered, either in the same way as additional sums for sections or by way of the EUA contribution towards EUA maintenance and insurance. This would not be considered additional cover per say, but rather being more inclusive about what is being insured.

  1. Liability

At all times, a minimum amount of liability cover must be in place (presently R10 million) but a general meeting determines the extent of cover required over and above this.

Presently, R50 million to R100 million is the normal amount of liability covered provided by sectional title insurers and should be ratified at each general meeting, or increased as required.

  1. Fidelity

CSOS Act Regulation 15, specifically subsection 15.(3,) sets out the minimum amount of cover that should be held. The AGM decides on whether this formulated minimum amount is sufficient and decides to increase. (PMR 23.(7))

Author:  Mike Addison, Addsure

Addsure is South Africa’s leading sectional title insurance brokerage. Obtain fit and proper advice from advisors who understand sectional title. Contact our head office, Cape Town (021) 551 5069 who will put you directly in touch with one of our nationwide advisors.