VIC: How is a strata insurance excess shared after water damage?

This article discusses how a strata insurance excess for water damage is shared, explaining when costs fall on one lot owner and when they must be split across multiple lots.

Question: Our building insurance has a $10,000 excess for water damage. If multiple units are damaged, how is the payment of the excess divided?

Answer: If the excess benefits multiple people or the damage arose from common property that was damaged, the excess will need to be shared according to lot liability.

In 2021 there was a change to how excess can be applied under the Owners Corporations Act 2006. The excess can only be applied if, effectively, the cause of the water ingress was attributed to the negligence of the person, for example, they left all taps on or they failed to maintain something. Section 23A of the Owners Corporations Act 2006 provides:

“An owners corporation may levy a lot owner a fee to cover the cost of—

1. an excess amount or an increased premium resulting from or attributable to an insurance claim, if the claim is caused by a culpable or wilful act or the gross negligence of—
   
   1. a lot owner; or
   2. a lot owner’s lessee; or
   3. a guest of a lot owner or a guest of a lot owner’s lessee;

…

3. an excess amount on an insurance claim if the claim solely relates to a lot owner’s lot.”

Otherwise, if the excess benefits multiple people or the damage arose from common property that was damaged, the excess will need to be shared according to lot liability. If the damage is caused by a lot owner’s private lot property (and the above circumstances in 23A don’t apply) there may be a right of action against the relevant lot owner under the Water Act by the lot owners who suffered the issue.

This post appears in the March 2024 edition of The VIC Strata Magazine.

Phillip Leaman
Tisher Liner FC Law
E: ocenquiry@tlfc.com.au
P: 03 8600 9370