A professional and responsible managing agent protects both their business as well as their client (body corporate) by having Professional Indemnity or Fidelity cover. It is our firm belief that as a professional who are relied upon for expert guidance and advice, you should be covered by Professional Indemnity Insurance – and so should any other professional advising or servicing the body corporate. Prudent trustees need to check that the insurance advisor, valuer, legal advisor, auditors, etc. have Professional Indemnity (PI) cover before engaging their services.
Professional Indemnity (PI) cover
This cover is used to protect professionals where they may be held liable for advice given that produced negative consequences. Liability can arise due to a breach of duty of care, or a breach of contract.
There are a number of instances where action was brought against professionals are as a result of damages sustained due to the professional’s failure to perform according to the generally accepted standards in their respective fields. This may expose such professionals to litigation.
In the case of a managing agent, it could be a case of failure to meet the contract or, in the absence of a contract, the failure to meet standards as set out in the National Association of Managing Agents’ (NAMA) code of conduct.
More recently, we have seen threats of claims against the managing agents for errors, slip-ups, omissions, etc.
Fidelity Guarantee, Fidelity Cover or Fidelity Insurance is essentially insurance against losses occurring as a result of fraud or dishonesty. Notwithstanding the Estate Agents Affairs Board (EAAB) cover, it is highly recommended that a managing agency protect itself by way of additional fidelity cover.
The EAAB itself states on its website: “An estate agency business is not entitled to recover any loss from the fund if the business has been held liable to pay compensation to a member of the public because of the theft committed by an employee agent. Firms should, again, assess the risk and take out the necessary fidelity insurance policies to cover any such loss.”
Therefore, if an employee misappropriates funds or causes a loss to the company, client body corporate or Home Owners’ Association through dishonesty (especially outside of a trust account), the business could be crippled without additional cover or would not be able to repay the loss incurred by the client.
PIMA is a group product specifically designed for the professional managing agent in South Africa. The principle is that there are more managing agents that constitute a lower risk and as such, managing agents who enjoy this cover have been assessed and underwritten by the insurers. Addsure and the underwriters (Camargue Underwriting Managers) recognize that NAMA members and other suitably qualified managing agents are less prone to error or omission and more aware and up to date with legislation. Substantial discounts are offered in these cases which make PIMA affordable as it’s designed for the managing agent.
The Fidelity extension to PIMA closes the fidelity gap and is recognized as suitable cover for Managing Agents with regard to employee dishonesty.
Should the body corporate also purchase Fidelity Cover?
We believe that this is essential, especially where body corporate reserve funds are building up.
Sectional Title Prescribed Management Rule 29.2(b) puts it to the trustees to discuss how much, if any, fidelity cover the body corporate should purchase given its particular scenario. We recommend an approach where the trustees always purchase this cover unless decided otherwise by a general meeting.
If the managing agent already has Fidelity under PIMA, the body corporate managed only need to purchase inexpensive fidelity cover, e.g. R1 000 000 cover for about R3 000 per annum. This is the Addsure FIDCURE® Fidelity Guarantee and Trustee Indemnity product.
Author : Mike 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