This article discusses body corporate insurance excess allocation under the Standard Module in QLD and explains how excess liability may be shared between owners and the body corporate.
Question: Can our body corporate apply a higher insurance excess only to owners who did not complete roof works?
Our Queensland body corporate has 52 ground floor units. Our current insurance policy has a sum insured of $20,005,955 and costs $84,960. Our strata manager receives a commission or rebate of $10,129.
The insurer advised that we would not be able to obtain insurance unless we upgraded or replaced our unit roofs. About 90 per cent of owners completed the roof works. Despite this, the policy now includes a $10,000 excess for burst pipes, flood, or storm damage, plus a basic excess of $2,000. Can the body corporate apply the $10,000 excess on a pro rata basis, or otherwise allocate it differently for owners who completed the roof works compared with those who did not?
I also asked for more information about the commission paid in relation to our insurance. I was told that the strata manager and broker do not take the commission directly. They deduct it from the insurance quote before presenting it to the committee. We have nothing in writing to confirm this. Is this the usual practice, and what information should the body corporate receive or record regarding insurance commissions?
Answer: Tell owners about the excess and that they could be liable for the full amount if they or their property are deemed to have caused or contributed to the event that triggered the excess.
It’s always worth rereading the legislation regarding excesses.
As per Regulation 203 in the Body Corporate and Community Management (Standard Module) Regulations 2020, this states:
- Despite a requirement under this part to insure for full replacement value, the body corporate is not prevented from insuring on the basis that an excess is payable on the happening of an event for which the insurance gives cover.
- However, in putting the insurance in place, the body corporate must ensure the arrangements for the liability for an excess under the insurance would not impose an unreasonable burden on the owners of individual lots, having regard to subsections (3) and (4) .
- For an event affecting only 1 lot, the owner of the lot is liable to pay the excess unless the body corporate decides it is unreasonable in all the circumstances for the owner to bear the liability.
Example—
If a shower screen is damaged in a lot and an insurance claim is made under the body corporate’s reinstatement insurance, the owner of the lot would be liable under subsection (3) to pay the excess unless the body corporate decides it is unreasonable for the owner to be required to pay it. However, if there is a fire within a lot caused by a short circuit in electrical wiring located in an internal partition, the body corporate might decide it would be unreasonable for the owner to be required to pay the excess.
- For an event affecting 2 or more lots, or 1 or more lots and common property, the body corporate is liable to pay the excess unless the body corporate decides it is reasonable in all the circumstances for the excess to be paid for by the owner of a particular lot, or to be shared between owners of particular lots, or between the owner of a lot and the body corporate, or between owners of particular lots and the body corporate.
There are multiple interesting and potentially controversial elements to this.
Clause 2 introduces the idea that if an owner is required to pay the excess, the body corporate cannot impose an ‘unreasonable burden’ on them. Excesses of $10,000 are fairly common these days. If an owner is required to pay that, is it an ‘unreasonable burden’? It may be for some people, but not for others. Who can really say?
Clause 3 says the owner should pay the excess if an event affects only one lot, unless the body corporate decides it is ‘unreasonable in all the circumstances for the owner to bear the liability’. Again, what’s unreasonable? What are ‘all the circumstances’?
Clause 4 allows that if the event affects more than one lot, or one lot and the common property, the excess should be paid by the body corporate unless the body corporate considers it reasonable for the one lot to pay the excess.
There are very few hard and fast rules in here. That may well be a good thing. Every insurance claim is different and presents a varying set of information. The legislation allows for different approaches depending on the circumstances, and the burden is then on committees to consider the evidence and make a reasonable decision.
As such, it’s probably not possible to answer your theoretical question around the excesses. There is no absolute answer defining what’s reasonable. Still, if you had recently had your roof fully repaired and suffered an event that triggered the insurance claim, it would be easier to make the argument that the severity of the event caused the damage and that you couldn’t reasonably have prevented it. Imposing an excess on your lot in that situation may be unreasonable. On the other hand, if you had a neighbour who suffered similar damage but hadn’t maintained their roof, it would be harder for them to make this case.
I advise the body corporate to write to owners advising them of the situation. Tell them about the excess and that they could be held liable for the full amount if it is deemed that they or their property have caused or contributed to the event that triggered the excess. Advise them that the legislation requires them to keep their property in good condition and that, as most claims are related to water damage, they should have a plumber attend to inspect their plumbing periodically. In this case, maybe they should have their roofs checked as well. If owners are informed in advance, it is harder for them to say that any excess payment constitutes an unreasonable burden.
In terms of the commission, it is not quite clear, but it sounds like your manager is not accepting an insurance commission. However, the commission is being applied to initial quotes and deducted afterwards. That sounds OK, and there may be justification for it. By leaving the commission on the quote, the manager can show the body corporate exactly how much money they are not receiving. Leaving the commission on may also help keep the insurer/broker honest. It helps prevent them from incorporating the commission into their own fees.
Ideally, deals should be written into the management contract. If not, any informal agreement could be subject to change. However, maybe this is a new policy that is not formalised. A lot is going on in the commissions space. Many companies are working out what to do as owners express a preference for moving away from these payments.
Either way, your managers should be able to show their workings. In this case, they could provide you with the renewal documents showing the projected cost inc commission and the final invoice showing the cost ex commission. You could request those documents and recommend that your committee formalise the agreement with the manager in some form. If it can’t be in the management contract, maybe a memorandum of understanding would at least provide a documented agreement.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
This post appears in Strata News #779.
Have a question or something to add to the article? Leave a comment below.
Read next:
- QLD: Can owners of free standing lots opt out of body corporate building insurance
- QLD: Reasonableness of insurance excess in a body corporate
- QLD: Can a Queensland body corporate self insure?
Visit our Strata Insurance, Maintenance and Common Property, Strata By-Laws and Legislation OR Strata Legislation QLD.
Looking for strata information concerning your state? For state-specific strata information, take a look here.
After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.
Leave a Reply