How insurance works with owners corporations
An owners corporation must take out reinstatement and replacement insurance and public liability insurance if a building on a plan of subdivision is located above or below common property, a reserve or a lot (s 61(1) OC Act) (with the exception of single storey buildings or where single storey buildings are registered under the Strata Titles Act 1967 (Vic) or the Cluster Titles Act 1974 (Vic), as they have designated common area above and below each lot).
Reinstatement and replacement insurance is required for the owners corporation’s portion of shared services (s 59(2A)), including any pipes and cables used to provide services such as water, electricity, gas and telecommunications to the building that are shared with a person other than the owners corporation or any of its members (s 54).
Insurance is often forgotten in small blocks where the only common property is a shared driveway (see the exception for “two-lot subdivisions”). That omission is sufficient to allow a purchaser to avoid a contract of sale at any time before completion. Often, solicitors and conveyancers will advise a seller to obtain public liability insurance but forget to advise that all buildings on common property must be fully insured and that this includes fences, letterboxes and corrals.
The OC Act requires the owners corporation to repair and maintain the common property and common services (s 46), but not privately owned property. The OC Act also provides that a lot owner must properly maintain in a state of good and serviceable repair any part of the lot that affects the outward appearance of the lot (s 129(a)). The OC Act does not mandate that an owner must maintain the internals of their lot, but it follows that a lot owner must repair and maintain any privately owned part of a lot and meet the cost incurred.
So, if a shower screen is damaged in a lot and an insurance claim is made under the owners corporations reinstatement insurance, is the owner of the lot liable to pay the excess? If the damage is caused by an insurable event and a claim recovers the cost, less any applicable excess, then the lot owner receives the amount recovered after the deduction of the excess and can therefore be said to have “borne” the excess. Similarly, if the damaged property is owned by the owners corporation then the excess is “borne” by the owners corporation. The making of rules that provide for the payment of insurance excess is not permitted under schedule 1 (s 138(1)) of the OC Act.
Building movement is not generally an insurable event. Individuals affected should rectify events that are not on common property.
A prescribed owners corporation must obtain a valuation of all insured buildings every five years or earlier (s 65 OC Act).
By unanimous resolution, an owners corporation may resolve that if there is no common property, each lot owner must arrange individual insurance. The resolution does not need to be registered (s 63 OC Act).
A change of use of a tenancy (e.g. to a restaurant), may attract a higher insurance premium due to an increased fire risk. Improvements to a lot will also necessitate higher cover. Can an owners corporation require the relevant lot owner to pay the increased premium? As section 28(2) of the OC Act protects a member from contributing beyond their lot liability (see “Entitlement and liability”) the lot owner is under no compulsion to do so.
The owners corporation may consider the merits of separate lot insurance, if permissible under section 61, or it may seek the unanimous consent of members to change the schedule of entitlement and liability. Failing consent, an application to VCAT under the Subdivision Act may be considered (s 34D).