Does your strata property have defect issues? Are you hoping Strata Insurance will cover the defect and resultant damage? Unfortunately it isn’t quite that simple.
Renee Cassidy, Claims Manager at Whitbread Insurance Brokers explains...
With high demand for property and inner city living, apartment buildings are popping up at record pace.
Yet, with contractors under pressure to meet increasingly tight deadlines, we have seen corners cut and compromises made like never before. In consequence, property defects and property defect insurance claims have gone through the roof.
What classifies as a property defect?
A property defect can result from a defective design, defective or faulty workmanship, defective materials, or a failure to comply with the structural performance requirements of the National Construction Code.
A defect must have consequences that will cause, or is likely to cause, part or all of the building to become uninhabitable, or unable to be used for its intended purpose.
To provide some context, a building defect may include things like faulty waterproofing, poorly constructed balconies, or something essential to the building’s stability or structure, such as foundations, footings, walls, roofs, or beams.
One very common example of a property defect, concerns building materials. We often see major defect claims come through for water damage as a result of incorrect protective membranes being used under showers, on balconies, or in some cases where there is no protective membrane at all!
Strata property defects on the more severe end of the scale have also become increasingly pronounced in Australia. Sydney’s Opal Tower and Melbourne’s Lacrosse building are just two highly publicised examples.
In the Opal Tower, parts of the structure were found to have been constructed using ‘lower strength concrete’, and ‘under-designed’ critical support beams, which burst under extreme pressure. In the Lacrosse fire, it was found that the severity and fast spread of the fire was caused in part, due to the exterior of the building not being clad in appropriate fire-resistant sheeting as required by the Building Code of Australia.
What can you do about the resultant damage from a property defect?
In many Strata properties it is not unusual to find defects during the first few years after construction, but what can you do when the defect is also causing resultant damage to the property?
Most owners seek to lodge an insurance claim under the Strata Insurance policy. Unfortunately, Strata unit owners are often shocked to discover their property damage claim is denied by the insurer.
Denials tend to occur because the defect is already known, or because the insurer deems that any “reasonable person” would have known about it, and if repaired earlier, could have prevented initial or further damage from occurring, avoiding the need to claim.
Unknown defects v known defects – are you covered?
Claiming due to an unknown defect
If you have purchased a relatively new property, and discover a defect which has caused damage to the property, there is a good chance it will be considered an unknown defect if the OC Committee and/or Strata Manager have not informed you of its existence. This generally means the insurer will consider covering repairs for any resultant damage.
Note: Rectification of the defect itself is excluded from Strata Insurance in most cases.
In general, most insurance policies specify that:
If damage was caused by the non-rectification of a defect you were unaware of, or could not have reasonably been expected to be aware of, then repairs for the resultant damage will be covered.
Claiming due to a known defect
Alternatively, if this same defect is known to have occurred elsewhere in the Strata property, and the defect is known to any one of the owners, the OC Committee, the Strata Manager or the insurer (whether or not a claim has been made), the insurer will not accept any insurance claims for this defect, anywhere in the Strata property.
Why? Essentially, if anyone else knew of the defect, it is no longer considered an unknown defect. Insurers’ are of the view that actions could have been taken to prevent the resultant damage caused by the defect, and therefore the insurer’s “known defects” policy exclusion applies to the claim.
What options do you have if the defect is already known and you cannot make a claim?
If your defect is already known and you cannot claim under your Strata Insurance policy, your next step should be to contact the initial builder to explore rectification.
A common misconception is that you can claim against the contractor’s Builders Warranty Insurance policy. Unfortunately, the name of this policy is a little misleading.
A Builders Warranty Insurance policy will only cover you for losses to a residential property if the builder becomes insolvent, disappears or is deceased within 6 years of performing the works.
HOWEVER, if the builder hasn’t passed away, disappeared or become insolvent, the first step, once isolating where the defect lies, should be to contact the contractor who performed the works in question.
If the response received from the contractor is not satisfactory, and they refuse to complete repairs or rectification works for the defect, you and any other owners may then have grounds to pursue legal action, as the contractors may be in breach of the National Construction Code.
Defects – 3 key steps to follow
Inform the right people – If a defect is discovered, the OC and Strata Manager should be informed immediately. Information on the defect can than be communicated to all property owners within the building, giving each the opportunity to repair the defect and prevent resultant damage.
Details – Builders’ / contractors’ details and invoices for any work they carried out should be kept for 6 years following completion. If the OC needs to seek damages to repair a defect, or claim against the contractor’s Builders Warranty Insurance policy, this will prove invaluable.
Communication - Always encourage good communication between the Strata Manager, OC Committee and lot owners. Open and frequent communication will help to ensure that any defect or property issues are identified and dealt with appropriately.
For further advice on navigating insurance claims for property defects, please contact Whitbread’s team of Strata Insurance specialists.
This article was originally featured in Title Magazine.
This insight 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.