 When
we think of community living and insurance, we usually think about sectional
title insurance, because it is under the sectional title environment, where
the buildings have to be insured by the body corporate, the responsibility
of the management of the scheme.
Within the home owner’s association environment, it is somewhat
different. Here the owners of each separately owned property need to see
to their own buildings insurance. Very often, their bondholder arranges
this for them or, if unbonded, it forms part of their own personal insurance.
Thus, for the most part, if within a home owner’s association environment,
insurance of the buildings is usually taken care of by the owners or their
bondholders.
However, what about the common property? What about property owner’s
or public liability? Are the trustees/directors indemnified? What about
Fidelity cover?
Prudent trustees / directors would indemnify themselves and ensure that
these risks are covered.
Let's start with the common property. This would encompass all the improvements
to the property falling within the home owner’s common area e.g.
between owner’s properties, etc. If the gate is not insured and say
impact damage or storm damage occurs, who will repair or replace it?
We suggest the start would be to refer to the HOA’s constitution
which may, itself, set out aspects about the insurance and how trustees
/ directors may or may not be indemnified. Remember, this is not a body
corporate, so there is no Sectional Title’s Act or prescribed rules
to protect or be guided by. By reading through the constitution, it may
very well set out what needs to be insured.
Andre De Waal, managing director of CIA, has the following to say about
his experiences insuring these entitities:
“They all tend to only insure the gate and gatehouse and sometimes,
the boundary wall. Yet, what they don’t realise, is that the following
is also their responsibility and needs to be insured:
- Roads
- Retaining walls
- Electric fencing
- Lamp posts (street lights)
- Electrical reticulation
- Water reticulation
- Sewage system (some complexes have their own systems with dams and
pumps etc.)
- Machinery breakdown cover on the pumps mentioned above.
- CCTV and security systems (All Risks and Electronic Equipment cover)
We have had instances where the chairperson changes, and years later,
the new chairperson or committee have no idea of what needs to be insured
and then apply their own minds and leave crucial items off the list. I
suggest they keep a register of sorts which can be passed from one committee
to the other. This register must clearly spell out what assets are their
responsibilities.”
We believe it goes even further. The trustees should also consider the
further risks associated with the common areas. For example, if a child
gets their hand caught in the gate motor mechanism, and suffers permanent
injury or loss from the injury sustained, and the HOA is found to be legally
liable for millions of rands, and lets say the HOA comprises of just a
few owners – will they then each be sued for these millions? Lets
rather indemnify against this with public liability or property owners
liability insurance. Furthermore, lets extend this cover to include errors
or omissions made by the trustees / directors – after all, they are
usually just volunteering to represent / oversee the owners collective
interests.
Denis Styles, joint managing director of Abacus, tells us: “The
most important aspect is the fact that in many cases the directors (not
Trustees) are unaware that homeowners associations fall under/ are to
be dealt with under the Companies Act, and that this potentially places
enormous responsibility on a director of such an association. In fact,
a director of an HOA could find that he/she suddenly is far more exposed
financially in his/her private capacity than he/she is in his/her place
of employment where he/she actually receives an income. Years ago, this
meant that the insurance cover on the Common Property was covered under
a Combined Wording and the prudent broker would have to purchase a separate
Officers and Directors Liability policy, which came at considerable cost,
and because of this, was frequently not taken. This exposed directors
of the association to claims in their personal capacity.”
HOA insurance is not at all a profitable business for insurers, as there
is a relatively high risk of a claimable event occurring, versus a fairly
low premium usually associated with this sort of cover. As such, insurers
treat this as ‘accommodation business” in that they are really
accommodating brokers and the industry by providing the insurance product
for these risks. Specialist building underwriters for various insurers
such as CIA, Abacus, FPA and others offer specifically tailored policies
for HOAs to cover some of the risks mentioned.
Article reference: Paddocks Press, Volume 4, Issue 1, Page 2.
About the author: Mike Addison is the director of Addsure, specialist
sectional title insurance brokers and is a regular contributor to the
Paddocks Press. (www.paddocks.co.za)
|
Newsletter:
3 February 2012 to 10 February 2012 - Krugersdorp, Gauteng, South Africa
