A strata plan is a legal ownership structure designed to subdivide a building or group of buildings into specific lots and common areas. Each state has its own laws and regulations around setting up, owning, managing, and selling strata properties. Terminology for the entity that owns the strata plan also differs between states. For example, in NSW ‘Owners Corporation’ is used whereas in QLD ‘Body Corporate’ is used. For the purpose of this article, we will adopt the term ‘Owners Corporation’ (OC) to refer to the entity that owns the strata title.
Strata-titled buildings may be made up of residential or commercial lots or a combination of the two. Residential strata may include duplexes, high-rise/low-rise apartments or units, townhouses and villas.
Commercial strata can include offices, factories, retail shops, warehouses, and storage units. Once you buy a residential or commercial strata lot, you are also buying into an Owners Corporation (OC).
What is Strata Insurance
Strata Insurance is a suite of coverages under one insurance product that the OC is responsible for purchasing which covers the building structure, common property and common areas against damage or loss. Cover generally extends as far as the driveways and fences of the property and may also cover listed items that are portable or semi-permanent such as sheds and gardening equipment. In addition to the property cover, the package generally includes cover for public liability (property damage or personal injury to a third party), Strata Committee / Office Bearers liability, voluntary workers, and fidelity cover (misappropriation of funds). See “What does it cover” below for a detailed overview of coverage sections normally included under a Strata Insurance policy.
Who requires the cover
Strata Insurance is mandatory for all OCs under the relevant legislation in each state and territory. In New South Wales, Part 9 of the Strata Schemes Management Act 2015 (NSW) (the Act) sets out the insurance obligations for OCs. Specific coverage requirements vary between jurisdictions so OC’s should ensure they comply with their state or territory legislative requirements to insure.
What cover is required
We have broadly set out the relevant statutory provisions as they exist in New South Wales and as they are generally intended to be covered by various strata policies in the table below.
Strata policies were designed to incorporate common insurance coverages traditionally procured individually as “single” insurance products. This assists OC’s in transacting their coverage. It must be noted however that coverage differs widely between insurers, each with their own nuanced coverage benefits and detriments.
What if a strata policy is not available for my plan?
From time to time some schemes may require the use of more traditional insurance policies because of their size or risk profile. This is often the case with larger plans that have a significant replacement value. For such plans the single product approach may not be available. We discuss these issues in our article: “Property Insurance for strata schemes – Industrial Special Risk vs Hybrid Strata Policies” .
Common exclusions
Coverage available under strata policies can contain exclusions relevant to all sections. It is important you familiarise yourself with these exclusions at regular intervals so any limitations or gaps in coverage are clearly understood.
In this regard, your risk advisor can assist with outlining the options available and highlighting potential liabilities which are subject to exclusions. Here we summarise common exclusions that frequently apply to claim declinatures.
1. Wear & Tear / maintenance
Excludes damage caused by lack of maintenance, rust, oxidation, corrosion, mould, mildew, wear and tear, fading, concrete or brick cancer, developing flaws, wet or dry rot, gradual corrosion or gradual deterioration or, failure to maintain the insured property in a reasonably good state of repair. This includes when the damage to the insured property is caused by light, air, sand, the climate (which includes wind or rain) or the passage of time.
2. Building defects
Excludes damage caused by non-rectification of a property defect, error or omission that the insured was aware of or should have been aware of.
3. Faulty workmanship
Excludes the cost of rectifying faulty or defective materials or faulty or defective workmanship, design or specification.
4. Construction
Excludes damage to property resulting from construction, erection, alteration or addition where the value of such work exceeds $500,000 unless the insurer’s consent to continue cover was obtained before commencing the work.
5. Defamation
Excludes claims arising from the making or publishing of a defamatory statements, libel or slander.
6. Office bearers
Excludes claims arising from circumstances which you knew of prior to entering into the policy, or a reasonable person could be expected to know to be circumstances which may give rise to a claim against you.
Coverage extensions
There are many insurers in the market offering Strata Insurance policies. The coverage offered by each insurer is similarly structured, however, all policies have varying sub-limits, benefits and policy extensions.
Some of the coverage extensions offered by major strata insurers include the following:
1. Paint & floating floors
Covers damage to unit owners’ paint and floating floors which are considered contents. Floating floors are laminated, veneered or similar flooring not fastened to the sub-floor but held in position by its own weight with or without skirting at perimeter walls.
2. Government audit costs
Covers the professional fees the OC incurs in connection with an audit.
3. Appeal expenses
Covers costs incurred by the OC in appealing an improvement or prohibition notice under any Work Health and Safety legislation.
4. Legal defence expenses
Covers defence costs incurred by the OC arising from a claim made or brought against the Strata Plan.
5. Lot owners fixtures & improvements
Provides top up cover in the event the building sum insured is exhausted. This section will provide cover for accidental loss or damage to unit owners’ fixtures and improvements (i.e. kitchens & bathrooms etc.).
6. Catastrophe
Covers the cost of reinstatement or replacement of the building following a declared catastrophe. This may include an extended period for loss of rent or temporary accommodation, removal or storage of common area contents, and evacuation expenses.
Common claims examples
Claims made under a strata policy can vary widely; however, the most common claims we observe in-clude the following:
1. Water damage
This is the most frequently notified claim in strata insurance. Water damage can result from burst pipes, leaking roofs, faulty plumbing, or flooding.
2. Storm damage
With severe weather events on the rise, including storms, hail, and cyclones, we are seeing more damage to roofs, windows, and external building structures. Strata insurance covers the repair of any damage caused by weather events to the building.
3. Burst pipes
Burst or damaged pipes can lead to extensive water damage within the building (see 1 above). Burst pipes can cause flooding, structural damage, and the need for repairs to both common areas and individual units.
4. Glass breakage
This can occur to windows, doors, or shower screens within the strata property and often re-sults from accidents, vandalism, or extreme weather events. Strata insurance typically covers the replacement or repair of damaged glass elements in the building.
5. Fire damage
Fires, whether accidental or due to arson, can cause significant damage to the building. In-surance covers repair or replacement of damaged structures and property due to fire.
6. Vandalism and malicious damage
Acts of vandalism and malicious damage can occur in common areas, car parks, or individu-al units. Insurance will help cover the cost of repairs for broken windows, doors, walls and new locks.
7. Impact damage
Strata buildings are covered for damage caused by third party vehicles such as a car collid-ing with gates, barriers, roller doors, building or common property.
8. Public liability claims
Liability claims can arise if someone is injured or their property is damaged. Public Liability insurance extends to covers legal costs and expenses in defending the claim against the OC, and if unsuccessful in doing so, plaintiff’s costs and expenses in addition to compensatory damages.
9. Office bearers liability
Sometimes an owner may deem a decision that has been made by a committee member to be wrong or incorrect and take legal action. Office bearers’ liability provides protection for committee members against allegations or actual wrongful acts, errors and admissions.
How to obtain advice and quotations
In our article “Strata Insurance – are your current arrangements achieving the best outcomes for your building?” we traverse issues, processes and methodologies to assist in procuring appropriate coverage for your strata complex.
We recommend a complimentary consultation with one of our advisors so that we may discuss your requirements and provide you with the necessary information required to procure compliant, appropriate and competitively priced strata insurance.
1 Workers Compensation Act 1987
2 Workplace Injury Management and Workers Compensation Act 1998
3 Public & Product Liability Insurance
4 Claims made insurance – a snapshot
5 Claims made insurance – a snapshot
