The tug of war between building defects and strata insurance
The type and cost of insurance cover of your building is directly related to what kind of defects your building may have and the level of damage they could cause. Here is what you should know so you can protect your property in the best possible way.
According to UNSW’s City Futures Research Centre, 75 per cent to 85 per cent of owners’ corporations have identified major defects in their buildings1.
With numerous cases of building defects coming to light, having your building insured is the right thing to do. How do you know what kind of insurance you need and for how much? When it comes to being safe, you should take care to cover all the bases – evaluate your options and be aware of any hidden or ambiguous clauses and exclusions in your insurance contract.
Nearly all insurance contracts have exclusions relating to defects, both known and hidden. Often, certain types of defects in your property may prevent you from having adequate insurance. So, knowing a few things in advance can keep you and your property safe.Here are 5 important considerations that you need to be across to protect your property:
- Have a proactive approach to rectification
- Be aware of the risks associated with defects
- Know how defects affect cost and type of insurance
- Provide documentation and reports for risk assessment
- Take additional insurance cover to protect your property
1. Have a proactive approach to rectification
Ensure your owners corporation or body corporate adopts a proactive approach in rectifying any defects by being ahead of the situation, connecting with stakeholders and ensuring compliance from all parties. This will maximise insurance coverage and avoid the risk of a claim denial due to defects or defective parts.
2. Be aware of the risks associated with defects
Knowing what kind of defects may compromise the safety of the building is crucial. For an owner, it may have personal financial implications and potential exposure to legal action.
3. Know how defects affect cost and type of insurance
The cost and type of insurance cover available for a building with defects will vary between insurers and their underwriting guidelines for defects. Generally, an insurer will consider the following factors:
- the severity of the defects
- the age of the building
- whether there is or will be legal action relating to defects
- are there plans for rectification of defects
- the owners attitude to rectification
4. Provide documentation and reports for risk assessment
By providing as much information as possible, you will be able to achieve the best insurance outcome based on your specific circumstances. There are a variety of sources of valuable information to determine the extent and severity of the defect and to decide the insurance cover available, such as:
- Professional reports from engineers etc.
- A builder’s scope of works to rectify the defect
- A copy of any building contracts showing the work required and associated cost
- Minutes of meetings showing the plans for remedial action
5. Take additional insurance cover to protect your property
Protecting the contents of your property (lot) with insurance is always a good idea. If you are renting your property, you may consider taking out a landlord’s insurance cover too. We recommend you discuss your options with your insurance provider so your’re not left vulnerable when there’s a crisis from building defects.
If you’d like to find out more on building compliance for your strata property, click here to download your free Community Living guide. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.
1. UNSW’s City Futures Research Centre, 2018, Defects in Strata: Research Overview