NSW: Can the owners corporation avoid paying if the owner refuses an insurance claim?

Question: Following water ingress from common property, a lot’s carpet was damaged. The owner refuses to claim the carpet on their contents policy. How can the owners corporation avoid covering the cost of this carpet replacement cost?

Our building had water ingress into two apartments from common property. The owners corporation (OC) is lodging a building insurance claim to cover resultant damages. However, the OC has decided not to claim the damaged carpet in one of the apartments. The owner refuses to lodge an insurance claim on their home contents policy, as they are concerned that this will increase future premiums. It will cost the OC several thousand dollars to replace the carpet, adding to already costly remedial works. Is there any action the OC can take?

Answer: A lot owner who holds a valid contents insurance policy is entitled to decide whether or not to lodge a claim.

In this scenario, there are several important considerations regarding the responsibilities of the OC and the rights of the lot owner:

1. Owner’s Right to Choose Whether to Claim: A lot owner who holds a valid contents insurance policy is entitled to decide whether or not to lodge a claim. There is no legal obligation for them to do so, even where it may appear to be the most practical or cost-effective course of action. If the owner believes the OC is responsible for the damage, particularly if it relates to a failure of common property, they may choose to pursue compensation directly from the OC instead. In such a case, the onus is on the lot owner to provide written reasons or supporting evidence outlining why they believe the OC is liable. This documentation is especially important should the matter be referred to the strata insurer as a potential legal liability claim.
2. No Power to Compel a Claim: The OC has no power under strata legislation to compel an owner to lodge a claim on their own contents policy. While it may be frustrating when a refusal results in additional costs to the OC, the owner’s decision not to lodge a claim is within their rights.
3. Typical Recovery Process in Contents Claims: In many cases, a lot owner will lodge a contents insurance claim and allow their insurer to investigate liability. If the contents insurer believes the OC was responsible (e.g. due to a failure to maintain common property), the insurer may pursue a recovery action against the OC. If the insurer is successful in recovering costs, the outcome generally does not affect the lot owner’s premium or claims history to the same extent as if they were unsuccessful or the matter remained unresolved.
4. OC Can Deny Liability: The OC is not obliged to accept responsibility for damage to a lot owner’s contents if it does not believe it is legally liable. That said, where the water ingress arose due to a failure or lack of maintenance on common property, there is a reasonable likelihood that liability could be established. In such cases, denying liability without appropriate legal or expert advice may expose the OC to further dispute or potential legal action.
5. Referral to Strata Insurer Under Legal Liability: If a claim is made against the OC by the owner for compensation relating to the carpet, the matter can be referred to the strata insurer under the legal liability section of the building insurance policy. The insurer will then correspond directly with the owner, investigate the matter, and determine whether liability should be accepted or denied. If accepted, the insurer may pay out the claim, which can help protect the OC from direct financial exposure.

In summary, while it may be frustrating that the owner has chosen not to use their contents insurance, the appropriate course of action is for the OC to assess whether it may be liable and, if so, whether a liability claim should be made under the strata insurance policy. Should the owner formally pursue the OC for compensation, the matter can be escalated through the appropriate insurance and legal channels for resolution.

This post appears in Strata News #712.

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.