The top 6 things to remember when applying for Strata Insurance.
With the Strata construction industry constantly evolving, and the introduction of new and complex legislation, the role of an insurance broker is more important than ever.
The role of a Strata Manager is continually increasing in complexity and responsibility. Below we address some key challenges affecting properties that can also impact the Strata Insurance - asbestos, non-compliant cladding, and property defects.
Unfortunately the frequency Strata Managers are faced with these issues is growing, and none are a problem that can be brushed aside. Strata Managers may either be held liable or joined in legal action if they have failed, or been alleged to have failed to disclose true information in relation to the strata properties they manage, or, neglected to act with due diligence in taking appropriate actions to rectify the problem.
Below we provide some tips on how you can best manage the presence of asbestos, non-compliant cladding, and property defects, to minimise the impact they can have on a property, as well as reduce the risk of any potential legal fallout.
In its prime, asbestos was seen as a highly adaptable mineral, and perfect for use in construction due to its efficiency as a heat and electrical insulator, physical flexibility, strength, and cost effectiveness.
Nowadays however, asbestos is notorious for being a carcinogen. It is well known that breathing in fibres can cause a number of life threatening respiratory diseases - asbestosis, mesothelioma, pleural and lung cancers.
Australia was one of the highest users of asbestos per capita up until the mid-1980s, before the health dangers of asbestos were truly realised, and the Australian Government banned its use due to concern over related diseases and deaths.
Unfortunately, despite legislated bans, a significant number of asbestos products still sit within our ‘built environment’, including both residential and commercial strata.
The World Health Organisation has declared that there is ‘no identified safe threshold’ for asbestos exposure. Based on this, the presence of existing asbestos in strata properties must be managed very carefully, as the danger of potential exposures can endure for a very long time into the future.
It is for this reason, that insurance companies are concerned about insuring properties of this nature, and why strict insurance policy conditions may be enforced for buildings that are known to contain asbestos (Asbestos Safety and Eradication Agency, Australian Government).
If one of the Strata buildings you manage contains asbestos, insurers may not be in a position to provide insurance coverage, as the presence of asbestos may sit outside their underwriting guidelines.
It is incredibly important to disclose the presence or possible presence of asbestos. If it is not disclosed to the insurer, serious difficulties could be experienced when it comes time to make a Strata Insurance claim i.e. claims could be denied, or the policy cancelled in its entirety for breaching the insurance contract.
Before entering into a contract of general insurance with an insurer, the OC has a duty under the Insurance Contracts Act 1984, to disclose to the insurer every matter that they know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms.
Since the horrific Grenfell Tower fire in London, and the Lacrosse building fire in Melbourne in 2014, there has been heated debate, publicity and government enquiries with respect to non-compliant building materials used in new strata developments.
To date, it has emerged that around 40 buildings in the Melbourne CBD area alone have been deemed non-compliant due to building materials used in the construction (Victorian Building Authority).
Considering the fact that many of Whitbread’s strata clients manage properties comprising non-compliant cladding, this has been identified as an ongoing and growing issue that all Strata Managers need to be educated on. The presence of cladding can have a significant impact on a Strata Manager’s ability to arrange and renew Strata Insurance programs in the future.
Strata building defects can be costly and time-consuming to handle. As time goes on, it becomes harder to distinguish genuine defects from ordinary `wear and tear´ or maintenance issues, whether on the common property or within the individual lots.
The majority of building defects have been found to occur as a result of the design of the building, the construction process or the materials used. Some of most common defects discovered, are internal water leaks, cracking to internal / external structures and water penetration from the outside.
Research has unveiled that of 1,011 strata title property owners surveyed, 72% had experienced one or more building defect. This figure increased to 85% for strata properties built since 2000 (MyBodyCorpReport.com.au).
Owners Corporations need to identify and act on potential defects early to meet warranty timeframes, and ensure they are rectified quickly.
Insurance policies have a defects exclusion and therefore defects claims are generally not covered under Strata Insurance. When applying for insurance, the Owners Corporation has an obligation under their ‘Duty of Disclosure’ to disclose any known defects.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
On Friday 4th of May, a burst water main and subsequent serious flooding of the basement at our Sydney office caused significant damage to essential building services.
In order to accurately underwrite a Strata Insurance policy, insurers are requiring a lot more information when placing new business or renewing Strata Insurance policies. Whitbread are Strata Insurance specialists, and can advise you of all the information insurers require.