The body corporate has the duty to insure the building or buildings of the scheme, and all improvements to the common property (including improvements to exclusive use areas), and to keep them insured for their replacement value against fire and other risks, as prescribed by the management rules or by a special resolution of the owners. This function is exercised by the trustees on behalf of the body corporate as directed by the Sectional Titles Schemes Management Act (STSMA).
A body corporate must make sure that it is sufficiently covered and that its insurance policy contains the following:
Building insurance
The body corporate must obtain coverage to insure its building or buildings. The body corporate must ensure that its insurance policy provides sufficient cover over the building or buildings to their replacement value against fire and certain prescribed risks. A body corporate must obtain a replacement valuation of all buildings and improvements that it must insure at least every three years and present such replacement valuation at the AGM.
Liability insurance
The STSMA deems it necessary for a body corporate to take out public liability insurance to cover itself from the risk of possible liability to pay compensation in respect of bodily injury to, death or illness of a person on or in connection with the common property and any damage to or loss of property that is sustained as a result of an occurrence or happening in connection with the common property.
Fidelity insurance
Bodies corporate also risk losing money as a result of fraud or dishonesty and therefore require coverage for this risk under its insurance policy. This is not the same as the cover obtained via the Fidelity Fund Certificate issued by the Estate Agency Affairs Board (EAAB) acquired by managing agents operating a trust account on behalf of the body corporate. This is additional prescribed cover that the body corporate must take out with an insurer. There is a minimum amount of coverage that a community scheme is directed to have, as prescribed by the CSOSA regulations.
What can go wrong if a Body Corporate has insufficient insurance coverage?
If a body corporate has insufficient coverage on its building insurance then there is a risk that If a building is destroyed, the section owners will be liable for all costs to replace or restore the building or buildings to their original state or lose their properties.
If a body corporate has insufficient coverage on its liability insurance then it may be liable for damages if sued for accidents that happen on common property. If a body corporate has insufficient coverage on its fidelity insurance it is at risk of losing money as a result of fraud and/or dishonesty.
Insufficient coverage on insurance will also have an impact on the body corporate’s annual financial statement audit and the auditors may have to report such findings in their audit report.
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