Dealing with insurance claims is often one of the most misunderstood areas in sectional title and very quickly leads to conflict and unpleasantness.

Knowing the basics and understanding the process certainly helps owners and trustees manage their expectations.

We all understand that the body corporate is the insured party. The owners have certain rights and interests in the policy, but sectional title legislation is designed in a way that the trustees arrange and deal with the insurance. This includes claims and reinstatement.

The trustees must insure the buildings (to its full replacement value) and negotiate premiums, excesses and rates on behalf of the body corporate. Premiums, excesses and rates can only be negotiated properly (usually annually) where trustees have an understanding of the claims ratio and are properly guided by their managing agent or insurance advisor. Trustees need to be aware of the claims on an ongoing basis. After all, they are overseeing the insurance and claim aspects – according to the Sectional Titles Act anyway.

Prescribed management rules also spell out that no document signed on behalf of a body corporate is valid or binding unless signed by two trustees or one trustee and the managing agent. This implies that in order for a claim to be valid and binding, the claim form must be signed by these persons. This is not always easy, granted, so many managing agent contracts provide for the delegation of this duty to the managing agent. However, it is better that the trustees ratify these where possible, for example at the next trustee meeting. In last month’s Paddocks Press (December 2010) in an article by Jennifer Paddock, this rule was discussed in more detail.

So, where does this leave call centre claim systems? Not in a good light, in my opinion. I don’t think call centres fit in with sectional title. We are seeing a trend whereby owners are sometimes able to claim from the body corporate’s policy through a claims call centre. In my view, this does not constitute a valid and binding claim, but more importantly, the trustees and the managing agent have a responsibility to manage the policy and the claims, thus it is critical that there be a management structure for these claims. It is common knowledge that, in many cases, minor claims are not assessed and “naughty owners” know this, at the expense of the other owners and prudent trustees. Claims through call centres bypass the management process.
 
If claims are submitted properly, which means on a properly prepared claim form through the trustees, managing agent or broker, a good insurance advisor can properly advise and filter claims so that claims are submitted correctly and efficiently. Incorrectly completed claims often result in repudiation where claims should have been admitted. A good broker coaches and assists clients in the process.

There are benefits call centres, for example that they are fast, paperless and easy. There is also the argument that owners have a right to claim. Of course they do, but through the body corporate. The owner is not the insured, but has a right. Indeed, policy definitions might say otherwise, but the insured is the body corporate and the body corporate needs to manage its own policy.

We feel that geyser call centre claims are “acceptable” since owners are responsible for geysers. I do have a problem with geyser maintenance on policies in principle, but we’ll save that discussion for another day!

To put it in perspective, the owner involved in a claim for damage to his or her section provides the body corporate with the evidence for the claim. A blank claim form should be easily available to the owner for this purpose. The claim form should be completed in the hand of the owner (person providing the evidence) and then given to the trustees or managing agent as soon as possible, together with invoices, quotes and damage reports in support of the claim. The trustees or managing agent then see to it that the responsible signatories validate the claim and submit to the insurer, usually through the broker.

The insurer will then either immediately admit the claim or, if it is larger, appoint an assessor or loss adjuster to verify the claim on behalf of the insurer. Claims must usually be submitted within 30 days of a claimable event taking place – usually a condition of the policy.

Once submitted, the process is very quick if all evidence is correctly collated and the claim form properly completed and signed. In many cases, the insurer will settle the claim straight away, often within 48 hours. Larger or more complex claims need a loss adjuster to be appointed. This appointment can also happen within a short time, but such claims can take much longer to finalise, sometimes a few weeks. This will certainly be the case where contractors are required to verify quotes, resubmit specifications and so on. Then, of course, the loss adjuster prepares a report for the insurer with his or her recommendations.

Once the claim is finalised, the insurer will either pay the claim, pay a negotiated adjusted claim sum or reject a claim.

As the body corporate is the insured as far as the insurer is concerned, any disagreement or dispute from an owner’s point of view needs to be taken up by the body corporate on that owner’s behalf. If the body corporate disagrees with that owner, it is my opinion that the dispute is then between the owner and the body corporate, not the individual owner and the insurer. The trustees need to maintain control in the interests of all owners; however, the individual needs to be aware of his or her rights and the procedures to follow when he or she feels wronged. A good broker can often informally mediate and assist in this process.

We suggest that each body corporate set up their own claims procedure to suit the needs of its own environment. Some bodies corporate have estate managers, have managing agents or are self-managed.

Some examples of usual claimable vs. non claimable events:

Damage to the building caused suddenly, unforeseeably and directly by events listed below may typically be claimable:
1)    Fire, lightning, explosion
2)    Wind, hail, storm, snow
3)    Burst pipe – not as a result of wear and tear
4)    Burst hot water cylinder
5)    Impact, such as a car colliding with gate or wall
6)    Accidental damage, e.g. spillage of paint on carpets
7)    Flood, sudden water damage
8)    Damage caused as a result of a break-in

Damage or losses caused as a result of wear and tear, ageing or maintenance, or that occur over a period of time, would ordinarily not be covered.

Typically, the following common losses ARE NOT covered:
1)    Water penetration over time, caused by failing waterproofing
2)    Water damage occurring “whenever it rains” due to leaking balcony from flat above
3)    Damage to ceilings, over time, due to bath trap or shower above leaking
4)    Damage to pipes, seeking the leak and repairs where pipes are old, rusty, leaking or have pinholes.
5)    Cracks appearing in tiles and walls unrelated to any specific claimable event
6)    Damp
7)    Seeping water, dampness, mould as a result of leaking pipe or pipe with pinholes
8)    Rain damage as windowsill is not waterproofed properly
9)    Damage resulting from poor workmanship
10)    Damage to a car after wind causes a roof tile to be lifted and fall
11)    Damage to an owner’s contents following a storm, fire, etc.
12)    Damage caused by tree roots growing into pipes (over time)
Parts of the building may not be covered or may not fall within the definition of buildings, like thatch, canvass awning, signage, certain glass fronts, retaining walls, garden features, wooden decks and balustrades.

Note that theft from the buildings, for example of copper pipe, gate motors, cameras, air conditioner parts and so on would also not be covered as a default. Theft is not a requirement in terms of prescribed rules but can be requested. Trustees and owners need to be aware and ask what may or may not be covered against theft.

The insurer is not your maintenance plan, and is there to indemnify the insured against a defined event – something sudden and unforeseen as described above.

In summary, the body corporate is the insured. Section 37 as well as the prescribed rules put the responsibility of managing the insurance on the trustees. Claims should flow through the trustees or their delegated managing agent so that a certain measure of control and structure is in place. Trustees should not decline claims per se, but can prevent unnecessary claiming if something is clearly not a real claim. It is suggested that a claims procedure be communicated to owners so that owners understand what they should do when a claimable event arises.

More about sectional title insurance, claims information and so on is available via the Addsure website on www.addsure.co.za.