This article about how strata building insurance payouts work. How are the funds distributed? The reply has been supplied by Tyrone Shandiman, Strata Insurance Solutions.
Question: If a strata building is completely destroyed, for example by fire, is the strata building insurance payout distributed back to lot owners by lot entitlement or some other means?
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When a strata building is completely destroyed (e.g. by fire), how is the strata building insurance payout money distributed:
- by Lot Entitlement % of the total payout
- or other means
Answer: In the absolute majority of cases for strata building insurance claims, settlements made by the insurer are not “distributed”.
In the absolute majority of cases for insurance claims, settlements made by the insurer are not “distributed”.
It is a requirement in legislation that owners insure the building for the full replacement value. In a total loss (or major loss), insurers will usually appoint their own builders and conduct repairs and payouts are made directly to the repairer.
If building is insured in accordance with legislation (full replacement value) and there are no underinsurance issues, the insurer makes one payment to their builder and therefore does not distribute payments per lot as indicated in the question – they simply fix the damage.
If the owners elect not to rebuild the property with the insurers repairer and therefore would like to re-build with another repairer, the insurer will make a cash settlement to the Body Corporate for the rebuild cost quoted by the repairer and the owners then conduct the repairs and make payments out of the settlement made by the insurer.
The insurer pays loss of rent/temporary accommodation costs directly to owners for the full weekly rent amount and usually these payments are made as progress payments every 1-2 months in major losses. The payment are made until the loss of rent/temporary accommodation sum insured (which is usually 15% of the building sum insured) are fully exhausted by all owners. Usually a loss of rent value of 15% of the building sum insured provides a reasonable amount of time for repairs to complete.
This post appears in Strata News #186.
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. This information is designed as a basic guide with relation to cover and you should refer to your Policy Schedule and Product Disclosure Statement for all terms and conditions related to cover under any insurance policy. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.