Friday, January 1, 2010

Dealing with insurance at the A.G.M. (Pages 31 - 33)

Owners need to understand the schedule of replacement values as described and dealt with above and we feel that trustees and managing agents need to present the schedule to owners in an informative yet simple way. Owners need to account for their additional expensive fitted kitchens, undertile heating, air-conditioning units, expensive flooring etc. when considering their section’s sum insured.

This leads onto PMR 56 (b) where it is very clear that it is compulsory that the schedule of replacement costs be transacted at an annual general meeting

“The following business shall be transacted at an annual general meeting:
…………………………..(b) “the approval with or without amendment of –
(i) the schedules of replacement values referred to in rule 29 (1) (c); and…..”

I will go into a little more detail on how to deal with this at the actual meeting further on here.

The schedule of replacement cost should reflect similar figures to that shown on the actual policy of insurance. After valuation, provided not lower than the last agreed figures, the trustees should instruct the insurers to amend the cover accordingly. The body corporate should be dealing with an authorized insurance broker / advisor (licenced with the Financial Services Board (FSB)) who specializes in this particular field of insurance. The broker/advisor should provide the body corporate with an annual renewal invitation plus quotes from alternative appropriate insurers / product providers for consideration. The insurance company / product provider should also be one with a sectional title friendly policy. This should be done in line with the valuation although, in practice not always achieved! The insurance advisor / broker should be providing this annual information under cover of a written record of advice. (Addsure clients enjoy this as a matter of routine, usual business practice).

At the A.G.M. itself, it is important to present the insurance schedules and related information clearly and then, just as importantly, ensuring that what was said here is accurately minuted. I believe that it is here, at this stage of the A.G.M., that what is said and minuted, is what could make a huge difference whether trustees are being negligent or not; and whether owners were properly informed. At claim stage when what was minuted at the AGM could be critical!
Here follows an example of dealing with this section of the meeting:

Chairperson “We now move on to item 3 which reads ‘Approve, with or without amendment, the schedules of replacement values’. This refers to the insurance replacement costs of the buildings. Copies of the schedules of replacement values were included together with the notice of the A.G.M. I will refer to these schedules as we highlight some of the information to all owners. The schedules are set out in columns for ease of reference. The sum insured in the sum insured column which corresponds to your section number is the sum insured based on the basic unit, not yet renovated or further improved. A separate column reflects each section’s proportionate share of the common property. The common property is shown separately here (notionally only) so that an owner can better see the replacement value of his/her section as set out from the valuation.
The values were determined by taking last years valuation (done by a professional valuer) and escalating the figures by 12%. It has been suggested to the trustees that a professional valuation should be done at least every 2 to 3 years. If all owners agree, the trustees will arrange for this every 2 years. This is nothing to do with market value or bank’s value. It is the estimated cost to replace the buildings together with professional fee, demolition, VAT etc. Any owner may increase the value of their unit by instructing the trustees via the managing agents. This will be where the ‘additions’ column will be used. The additional cost will be borne by that owner. It is stated for the record that any owner who feels that their section is not adequately insured, whether because they feel the rate per sqm is too low or because they have added value by way of improvements, should straight away advise the trustees to increase the value of their unit accordingly. The trustees have placed the insurance cover with X Insurance Co because they are one of two insurers specializing in wider cover for the sectional title environment. The policy number and excesses are stated on the policy. The claims procedure and a copy of the policy document is held by the managing agent, a copy of which is available upon request. A copy of the policy document (wording) as well as the most recent valuation is with us here tonight, should anyone here wish to take a look at them.
After this information is provided, the chairperson asks the floor that a member propose that the the insurance schedule to be accepted and that all owners thus accept the buildings replacement cost as stated in the schedule subject to individual requests in the additional column from time to time. The motion to accept the schedules is proposed, seconded and the motion carried.

It is then most important to minute this section properly so that the minutes clearly reflect that the chairperson stated the way in which the replacement cost of the buildings were determined and that all owners agree. It should be noted that the chairperson explained the additional sum so that no owner can claim that they were not aware of, or did not understand the insurance schedule and/or how the values were determined. It should be noted that the geyser options were tabled and be minuted as to which option was decided upon.

More on dealing with insurance ahead of the A.G.M. can be found on or Personal Finance magazine

Addsure specialises in preparing schedules and assiting clients properly present these and other matters such as the new excess rule and fidelity cover at general meetings.
Addsure clients also have access other meeting resources and expert input.
The Paddocks Learning "Law of Sectional Title Meetings" course is an excellent course which equips the learner with in depth knowledge and background to the legal aspects of sectional title meetings. See