You’ve sought professional advice and obtained a valuation. Now the question is; do you take it or leave it?
When it comes to determining a Building Sum Insured, disregarding professional advice could be detrimental to everyone concerned: the property owner, the Owners Corporation (OC) Committee and you, the Strata Manager.
One responsibility of an OC Committee is to ensure the property is insured for full replacement and reinstatement value. A Professional Property Valuer can determine this for the OC Committee.
Unfortunately however, OC Committees don’t always follow recommendations provided…
Recently, after receiving an updated valuation from a Strata Manager, Resolute proceeded to arrange renewal terms and comparative quotes based on the higher sum insured, in accordance with the valuation. The property, consisting of 22 residential units, had a current Building Sum Insured of $2,500,000 and the valuation recommended the building replacement cost should actually be $5,850,000 – a substantial difference!
When the Strata Manager presented the renewal terms, in accordance with the valuation, the OC Committee voted NOT to increase the sum insured. Resolute were advised of the OC Committee’s decision, however it would have been a breach of our professional duty for us to action this request. Doing so could have led to legal exposures for all involved.
Exposures to the OC Committee:
According to the Owners Corporation Act 2006 – SECT 59 – Reinstatement and Replacement Insurance, (Page 31 to 32) – legislation requires that a building is insured for full replacement and reinstatement value. Providing instructions to underinsure the property may expose the OC Committee to an Office Bearers Liability claim.
Exposures to the Property Owner:
If the property is underinsured, in the event the building is a total loss, the property owners would be responsible for additional costs in excess of the policy limit.
To put this into context, using the earlier example; if this building was subject to a total loss, each of these lot owners could be $152,272.72 out of pocket!
Exposures to you – the Strata Manager:
Any company or individual providing professional advice or services can be held liable for financial loss arising from errors or omissions committed as part of their professional services. In this example, the Strata Manager could be exposing themselves to a Professional Indemnity claim if the OC incurred a financial loss that could be attributed to a breach of professional duty.
As an insurance broker, we have a duty under The Insurance Brokers Code of Practice to abide by the law, which means that arranging insurance for an amount less than specified in the Owners Corporation Act is a breach of our duty as an insurance broker. Accordingly, Resolute Property Protect will ALWAYS recommend a building is insured in accordance with the most current valuation.
Resolute recommend for Strata Managers to advise their clients to obtain a Professional Property Valuation by a Sworn Valuer every three to five years to ensure the building remains adequately insured, and adjust insurance coverage accordingly.
For more information on the risk of disregarding a property valuation, please contact your Resolute Property Protect Account Manager on 1300 668 033.
This insight article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Resolute Property Protect ABN 53 157 850 827 Licence Number: 425 966 for further information or refer to our website.