By Mike Addison, MD Addsure

The Covid-19 pandemic has changed the way we live, work and behave. Every single community scheme or business has been affected in some way or another.

As this is all new to us, we have had to rely on various legal opinions, input from underwriting managers and other sources to help us provide guidance to our clients.

Community scheme insurance is essentially about transferring certain risks of the owners collectively to an insurer.

What policies should community schemes have and how will these respond to a Covid-19 related event?

Buildings insurance deals with damages to property. There isn’t much risk in this area as the virus is unlikely to damage the property itself. Contamination and pollution are a standard exclusion. Other exclusions include seepage, rust, oxidation, corrosion, deforming and distortion.

Fidelity pertains to dishonesty. It is highly unlikely that the virus will be directly involved in any dishonest acts by trustees or managing agents. Where we have seen increased risks, is where employees of schemes and employees of managing agents work from home, leading to higher risks relating to computer crime and cyber risks, loss of data, etc.

Be mindful that home use of data and information may expose clients to other members of households. Even online meetings may no longer be as confidential and secure as before.

Are managing agents and schemes comfortable that financial transactions conducted from the homes of employees are secure enough?

Liability insurance protects bodies corporate in the case of accidental illness or death on the scheme’s grounds. Insurance specialists advise that it is highly unlikely that anyone could prove they were infected by the building or its facilities.

There is an exclusion for seepage, pollution or contamination (including nullifying or cleaning up) where it is not caused by a sudden, unintended and unforeseen event. In our view, this exclusion does not account for an infectious disease of this nature in mind.

Some policies specify that consequential losses will not be covered, ruling out this approach for Covid-19 claims.

Community Scheme Legal’s (CSL) policy provides additional protection in these instances and are not included in our Letters of Advice (LOAs) upon renewal. Legal advisors have started to recommend the inclusion of infectious disease clauses in disclaimers which we support.

Trustee or director indemnity is usually added as a separate section or as an extension of liability. This kind of insurance primarily covers the scheme against liability following an error or omission that resulted in a person’s financial or economic losses that is unrelated to illness (such as Covid-19).

An example may be not allowing a prospective buyer to see a property, not allowing urgent repairs or not allowing internet repairs, resulting in a loss of income to an owner. Seepage, pollution and contamination are also excluded here.

This is where we see one of the highest risk areas not covered. Although this risk has never been covered, trustees, directors and estate management need to be aware of what they may – or may not – allow. As we move between the different stages of lockdown, trustees need to take care that owners’ rights are not infringed.

Community Scheme Legal (CSL) Policy

The CSL policy is essentially a legal assistance policy with a wide range of benefits, primarily offering legal advice and protection including liability defense costs required in a Covid-19 related matter.

It also offers discounts and advice in mitigation of legal matters, such as advice on disclaimer boards, understanding and advice on directives, and how Covid-19 related issues should be managed.

One huge benefit is the assistance offered in collecting legal fees. Where Covid-19 has a devastating effect on owners’ ability to meet levy payments, arrears become a high risk; particularly in respect of legal fees associated with collections.

Each scheme has different dynamics. The risks associated with a duet sectional title scheme versus a 500-unit complex with facilities such as squash courts, gyms, swimming pools, etc. are very different.

What can a scheme do to mitigate risk?

• For a policy to respond, the laws must be followed so be sure to follow CSOS (Community Scheme Ombud Service) directives.
• Trustees need to know what their duties and responsibilities are. Read CSOS Regulation 14 for clarity which specifically refers to the scheme executive’s responsibility in respect of legislation and governance documentation.
• Disclaimer boards must be upgraded: Every scheme should upgrade their boards to comply with the Consumer Act which should now include an infectious disease clause.
• Be careful about confidentiality and don’t advise all owners of someone’s illness as privacy transgressions are serious.
• Make sure that gate management is properly adhered to, that masks and other personal protective equipment are worn by people entering the premises. Be careful not to be over-restrictive for reasons mentioned under trustee indemnity.
• Amending rules to cover your scheme may be necessary and makes sense.
• Make more of an effort to clean high-risk areas such as lifts, handrails, bin areas, etc.
• Encourage owners to be more considerate and conscious of placing rubbish in bags before disposing into communal bins.
• Ensure that plumbing and drainage is clear and well-maintained. With more people at home, plumbing will be under more pressure than normal.
• Ensure that workers on common property are following Covid-19 protocol.
• Discourage sharing of lifts by different families. Lift signage can avoid embarrassment.
• Put up appropriate signage.

Some trends and considerations

• More people are now working from home which means that business risks will start to emerge from home. The design of future homes may also include work spaces as part of the holistic home layout.
• From a risk management point of view, be aware of people potentially using their garages for welding or storing stock.
• We have never before seen such push-back on excess payments or risks not covered by insurers. Consider slightly higher premiums and lower excesses, especially geyser replacements.
• Watch out for more attempts at maintenance-related claims.
• More people are asking for cash in lieu settlements. Try to see to it that funds from claims (claim disbursements) are applied to damage repairs.
• Instead of cutting premiums, rather reduce excesses.
• Remember to have valuations done. Many properties are over-insured and the cost of a valuation may pay for itself considering the possible saving in insurance premium.
• It is a good time to attend to projects as interest rates are low and we need to stimulate the economy.
• Don’t let common areas deteriorate. Keep collecting levies – owners still need to pay.

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