Question: Our building has had defects and water ingress issues for years. Due to ongoing neglect of the issues, our insurance company did not renew the insurance and it has lapsed. What do we do now?
I am an owner of one of 40 units in an 8 story building in Parramatta. The building has had defects and water ingress issues for years.
Due to ongoing neglect of the issues, our insurance company did not renew the insurance and it has lapsed.
Our Strata Management Company resigned due to our insurance situation, but luckily they are still working tirelessly behind the scenes on insurance and trying to assist.
This situation is causing me and other lot owners a great deal of stress. We are working to restore insurer’s confidence that the issues will be dealt with and that we will continue to maintain the building.
Do you have any suggestions regarding insurance or what else the strata committee should also be doing?
Answer: Insurers are more favourable to buildings that demonstrate a proactive approach to dealing with building issues.
Since the Miami building collapse in 2021, which has a legal settlement of $997m, insurers have become more wary of covering buildings with defects. We are now finding insurers guidelines are becoming more stringent for defects.
We recommend an owners corporation takes reasonable action to address defects when they arise. Insurers are more favourable to buildings that demonstrate a proactive approach to dealing with building issues. Long term failure to address defects without reasonable grounds, can render a building uninsurable.
When the owners corporation become aware of defects, they have a “duty to disclosure” requiring them to advise the insurer of matters relevant to the insurers decision to insure you. Failure to disclose defects can mean the insurer can void the insurance policy or a claim. The duty of disclosure applies when the policy is taken out, renewed or altered and for this reason, if you are undertaking a defects report and have no grounds for doing so from a safety or damage perspective, we recommend such reports are commissioned in the months after the policy has been renewed as opposed to the months prior.
In addition to disclosing the defects, it is important to note that “Non-rectification of defects, errors or omissions you were aware of” is a specific policy exclusion. Irrespective of the progress the owners are making in rectifying any defects, the policy may exclude damage for known defects. So having the defects rectified in an expeditious manner is in the interest of owners.
We recommend the following measures are considered where insurability is an issue for a building due to defects:
- Take action to minimise any perceived risks – if there are any temporary make safe measures that can be implemented to minimise risk, this should be a consideration. This should actively be discussed with the insurer.
- Ensure the entire market has been quoted, so that you can demonstrate to owners, no insurance cover exists.
- Discuss insurability issues with owners – if there is no insurance cover on a building, owners should know.
This article may be little hope to a building that is uninsurable due to defects, but we trust the information provided is useful for buildings that are dealing with defect issues.
Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au P: 1300 554 165
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.