By Maria van Zyl – The Advisory

It is often said that paying hefty insurance premiums are unnecessary and likened to anxious planning for improbable future events. This is, of course, untrue. As the recent KZN floodings clearly illustrate, nobody is ever immune from tragedy, disaster, or catastrophe. Obtaining coverage through insurance is a way to mitigate the risk of potential damages or losses incurred by such events.

Legislation governing sectional title schemes imposes an obligation on bodies corporate to have at least three kinds of insurance policies:

1)     Structural insurance

2)     Public liability insurance

3)     Fidelity insurance

Bodies corporate often encounter instances in which each of these insurance types are proven to be essential. Should a body corporate not have adequate insurance in each of these categories, the consequences may be dire.

The Sectional Titles Schemes Management Act (“the Act”) imposes an obligation on bodies corporate to obtain structural insurance against damage caused by fire and any other risk as determined by special resolution. The responsibility to ensure that all buildings are adequately covered for an amount not less than their replacement value, is entrusted to the trustees.

Another important insurance policy required in terms of the Act is public liability insurance. This type of insurance covers the body corporate against the risk of injury to persons or damages to property occurring within the boundaries of schemes. The Act states that members may determine the amount of such cover at a general meeting, but it may not be less than R10 million.

As a final point, the Act requires trustees to have fidelity insurance which aims to mitigate the risk of the loss of funds belonging to the body corporate. Usually, these types of losses occur through fraudulent or dishonest conduct by internal or external role-players. Although the Act states that members may determine the amount to be noted in the policy, the Community Schemes Ombud Service Act prescribes a minimum amount of cover which is determined by the body corporate’s financial position.

It is important for trustees and members of the body corporate to ensure that their scheme is compliant with the insurance provisions of the governing legislation. Failure to have adequate insurance coverage in place may result in unexpected expenditure for which the body corporate would be liable. Should no provision be made for such expenses, the possibility exists that these costs would have to be met by raising a special levy.

When it comes to insurance, hope for the best but prepare for the worst.

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