Trustees need to be aware of the statutory functions of a body corporate in respect of the insurance:
to insure the building or buildings and keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed;
Rule 29 states that the trustees must see to it that the buildings and all improvements to the body corporate are insured to full replacement value against certain prescribed risks / perils. It also states that this must be arranged, subject to negotiation of premium, excess and rate which is in the best interest of all the owners.
It is my experience that this is an area often overlooked, everyone assuming that “its taken care of”. The buck always stops with the trustees so let’s take a closer look at what the new trustee can and should do straight away after being elected:
1. Find out when the buildings were last valued or how the present sums insured were determined.
2. Obtain a full copy of your present insurance policy, schedule of replacement values and claims history.
3. Do a rough “back of the cigarette box” estimation as follows:
| Property description
|| Rate Per sqm
|Residential sections||1,000||6,500||R 6,500,000|
|Add 10% to 15% or so for common area||700,000|
|Add 12% for professional fees||924,000|
|Add 14% VAT||1,207,360|
|Add 5% for removal of debris||491,568|
|Roughly estimated Replacement cost||R10,322,928|
Use this format and perhaps do it using even 3 different rates and then compare it to your existing insurance sum insured.
4. If you seem to be underinsured, increase your cover up to at least your estimated amount and also set about arranging for a professional valuer to value your buildings – this should be done every 2 or 3 years.
5. Check your policy document – does the cover described match that as set out in prescribed management rules or your particular body corporate rules. Check the following :
a) premiums are paid up to date
b) the risk address stated matches the street address of the buildings
c) the policy is preferably a body corporate policy such as those issued by Corporate Sure, CIA, Abacus, Accomod8 or FPA (underwriting managers specialising in sectional title)
d) does the schedule of replacement costs as agreed to at your recent annual general meeting match that reflected in the policy
e) that there is sufficient public liability cover, minimum R10,000,000, preferably more, and preferably trustees indemnity extension
f) that there is preferably accidental damage cover and all risk cover for items that are at risk for theft such as air-conditioning units, aerials, cameras, etc.
6. Check on who your insurance advisor / broker is and ask for a copy of the last written advice and comparative quotations.
7. Check that you or your managing agent has a copy of your broker’s FAIS licence on file.
8. Check whether your insurance advisor has a good understanding and experienced in sectional title matters.
9. Check whether the insurance advisor and managing agent has professional indemnity cover
Another insurance aspect that should be considered – Fidelity Cover. Prescribed management rules suggest that the amount of cover, if any, should be determined by the owners. If the body corporate is managing its own accounts or self managed, then the body corporate needs to decide on how much cover it needs to protect itself against dishonesty / theft of body corporate monies by the trustees or employees.
If the body corporate is managed by a managing agent, then the body corporate’s money should be held in trust and thus covered by the Estate Agents Affairs Board Fidelity Guarantee. This issue has more recently been highlighted after the liquidation of a well known Cape based managing agent where it is alleged that large sums of money were misappropriated. Trustees need to make sure that they are receiving appropriate advice in this regard and re-visit how banking and signing power arrangements are covered.
Trustees should also check that professionals they deal with have appropriate professional indemnity cover. This will include your insurance broker, property valuer, auditor, attorney and your managing agent.
Trustees should also ensure that any contractor, attending to works on common property, have appropriate contractors all risk cover. Obtain confirmation of such before any works commence.
Once you have had the buildings re-valued, see to it that a fresh schedule of replacement values is prepared. Your managing agent should be able to assist you with this. Some specialist insurance advisors are geared to assist you here, but take care, it is not the insurance company’s place to prepare such a schedule – it’s between you and your managing agent to get this done properly and keep maintained and up to date.
It should NOT be a simple photocopy of the insurance company’s schedule but rather the insurance policy should be updated to reflect a mirror image of the body corporate’s schedule of replacement values.
Let each owner have a copy of this schedule and have it explained, presented and approved at the next general meeting.
It is always a good idea to send all owners and occupiers of units, insurance claims procedures and details of who to contact in case of an emergency e.g. hotline phone number for when a geyser/hot water cylinder bursts or an alternative number of plumbers recommended etc.
Trustees and owners can learn more about these and other important aspects by attending a workshop near you. See www.addsure.blogspot.com for more information on these. www.pima.co.za for more on indemnity cover for managing agents and www.sto.co.za for information and forum discussion on some of these issues.
Article reference: Volume 4, Issue 10, Page 2.