Strata Properties: 3 Important Insurance Covers
When it comes to Strata Insurance, nothing is as simple as it seems. There are 3 different types of insurance linked to strata living, all covering different aspects of your property. In this article, Lia de Sousa, Whitbread’s General Manager I Strata, explains the cover you need to adequately protect your property, and the contents inside.
If there’s one thing we’ve learnt from advising on, and placing Strata Insurance for over 40 years, it’s that there’s significant confusion about the various insurance covers required by those who own and / or live in strata properties. In short, it’s hard to know where one policy ends and the next begins! So let’s explain …
Strata Insurance is a compulsory cover, providing general insurance cover for the strata building, shared or ‘common’ areas, common property and common contents. Basically it covers anything you and your neighbours own collectively, and which comes under the management of an Owners Corporation (OC) or Body Corporate.
Common property includes the building itself, and fixtures that form part of the building structure, such as fixed plant, machinery and underground services, and owner’s fixtures, fittings and improvements which form part of the building e.g. balconies, shared water pipes, sewage pipes and electrical conduits.
If in doubt, your original strata plan of subdivision and any subsequent by-law or rule amendments will define what is and isn’t common property. Common Contents includes any appliances, equipment, furniture, fittings and works of art in common areas for which the OC is responsible.
Public Liability is also covered under Strata Insurance, protecting the OC against third party claims for property damage and personal injury in common areas.
The cover afforded by a Strata Insurance policy does not cover the personal assets of Owner-Occupiers or tenants in the individual lot. If you are an Owner-Occupier or tenant in a strata title, you need to take out a Contents Insurance policy. This policy is designed to protect your personal assets, as well as any associated public liability risks within the home.
Tip: An easy way to visualise the tangible assets you need to personally insure, is to imagine the building being turned upside down and shaken vigorously. Anything that falls out of the lot is your responsibility to insure e.g. clothing, jewellery, furniture and electrical appliances not fixed into the premises.
Internal carpets, light fittings and blinds might not be so easily shaken out, but these items are also included under a Contents Insurance policy, as they do not form part of the building structure.
If your strata property is an investment which you lease, then you require a Landlord Insurance policy.
Landlord Insurance provides cover for your fixtures and fittings, including blinds, carpets and light fittings inside the lot. It may also cover rent default and public liability exposures.
Should the premises become uninhabitable due to contents damage, the Landlord Insurance policy may also extend to cover Loss of Rent.
To put all of this insurance jargon into context, let’s look at a claims scenario, explaining how each of these 3 policies respond.
Kings Landing is a residential apartment block comprising 30 separate lots. Mrs. Jones, who lives on Level 5, is an Owner-Occupier. She lives directly above Mr. Smith on Level 4, who is renting the apartment from a landlord, Mrs. Wells.
One day, Mr. Smith returns from work to discover sewage leaking from his ceiling and the lounge room flooded. It turns out a pipe burst in Mrs. Jones’ apartment, which is causing sewage to seep through the floor and into Mr. Smith’s apartment. Mrs. Jones has extensive damage to her walls, carpets and personal belongings as a result of the burst pipe, as does Mr. Smith.
Mr. Smith, being a tenant, refers the matter immediately to his landlord, Mrs. Wells, informing her that the apartment is uninhabitable until repairs are carried out. Mrs. Wells is concerned that she will be out of pocket for the rent she would have received during the period the repairs are being carried out.
Question: Who is responsible here? Is it Mrs. Jones’ fault because the problem began in her apartment? Is it the OC’s responsibility as the sewerage pipe forms part of the building structure? Or, does the answer (as it usually does) lie somewhere in the middle?
Answer: As the problem occurred in Mrs. Jones’ apartment, Mrs. Jones as an Owner-Occupier would first make a claim under the Strata Insurance policy for the burst sewerage pipe, which is considered Common Property.
The Strata Insurance policy in place for Kings Landing would respond to cover the repair of the burst sewerage pipe in the Common Area and the repairs of ceilings, walls, etc. for both Mrs. Jones and Mrs. Wells. Mrs. Jones would need to make a claim under her Contents policy for the repair and replacement of any contents damaged; this includes damage to carpets.
Mrs. Wells’ structural repairs would be covered under the Strata Insurance policy but she would also need to make a claim under her Landlord policy to repair and replace any carpets, blinds or light fittings damaged. As the premises has become uninhabitable due to damaged contents, Mrs. Wells’ Landlord policy should respond to cover the rent she will be out of pocket for during the period the premises is uninhabitable.
Mr. Smith would make a claim on his Contents policy to replace and / or repair any of his personal belongings that were damaged. Strata Insurance isn’t enough on its own.
Strata Insurance provides critical protection for your home and / or investment property, but is not sufficient by itself.
Had Mrs. Jones and Mrs. Wells wrongly assumed their contents and / or fixtures and fittings were covered under the Strata Insurance policy, they would have suffered a significant uninsured loss, incurring costs to replace damaged items.
Insurance is complex, and it is rare that one solution fits all situations. The advice above is general in nature and we strongly recommend consulting a professional insurance broker to ensure your assets are sufficiently protected.
*This article was re:posted with permission from LookUpStrata – The VIC Strata Magazine September 2020 Issue 1