Saturday, January 2, 2010

What Trustees Need To Insure Against (Pages 5 -9)

Section 37 of the Act sets out functions of the body corporate. Some of these pertaining to the insurance aspect are set out below and include:
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;
to insure against such other risks as the owners may by special resolution determine;
subject to the provisions of section 48 and to the rights of the holder of any sectional mortgage bond, forthwith to apply any insurance money received by it in respect of damage to the building or buildings, in rebuilding and reinstating the building or buildings in so far as this may be effected;
to pay the premiums on any policy of insurance effected by it

It is important to understand that in terms of section 35 of the Sectional Titles Act, Management and Conduct rules shall provide for the control, management, administration, use and enjoyment of the sections and the common property. These rules are prescribed by regulation and may be substituted, added to, amended or repealed from time to time by unanimous resolution of the body corporate. (I’ll come back to this point a little later when discussing excesses.)

Insurance is “covered” or dealt with in more detail, by Management Rule 29

29. (1) (a) At the first meeting of the trustees or so soon thereafter as is possible, and annually thereafter, the trustees shall take steps to insure the buildings, and all improvements to the common property, to the full replacement value thereof, , subject to negotiation of such excess, premiums and insurance rates as in the opinion of the trustees are most beneficial to the owners, against-

(i) fire, lightning and explosion;
(ii) riot, civil commotion, strikes, lock-outs, labour disturbances or malicious persons acting on behalf of or in connection with any political organization;
(iii) storm, tempest and flood;
(iv) earthquake;
(v) aircraft and other aerial devices or articles dropped there from;
(vi) bursting or overflowing of water tanks, apparatus or pipes;
(vii) impact with any of the said buildings or improvements by any road vehicle, horses or cattle;
(viii) housebreaking or any attempt thereat;
(ix) loss of occupation or loss of rent in respect of any of the above risks;
(x) such other perils or dangers as the trustees or any holder of first mortgage bonds over not less than 25% in number of the units in the scheme, may deem appropriate.

(b) The trustees shall at all times ensure that in the policy of insurance referred to in paragraph (a) above-
(i) there is specified the replacement value of each unit (excluding the owner's interest in the land)-
(aa) initially [but subject to the provisions of subparagraph (cc)] in accordance with the trustees' estimate of such value;
(bb) after the first annual general meeting [but subject to the provisions of subparagraph (cc)] in accordance with the schedule of values as approved in terms of paragraph (c); or
(cc) as required at any time by any owner in terms of paragraph (d);
(ii) any 'average' clause is restricted in its effect to individual units and does not apply to the building as a whole.
(iii) there is included a clause in terms of which the policy is valid and enforceable by any mortgagee against the insurer notwithstanding any circumstances whatsoever which would otherwise entitle the insurer to refuse to make payment of the amount insured unless and until the insurer on not less than 30 days' notice to the mortgagee shall have terminated such insurance.

(c) Before every annual general meeting, the trustees shall cause to be prepared schedules reflecting their estimate of-
(i) the replacement value of the buildings and all improvements to the common property; and
(ii) the replacement value of each unit (excluding the owner's interest in the land), the aggregate of such values of all units being equal to the value referred to in subparagraph (i) above,
and such schedules shall be laid before the annual general meeting for consideration and approval in terms of rule 56.
(d) Any owner may at any time increase the replacement value as specified in the insurance policy in respect of his unit: Provided that such owner shall be liable for payment of the additional insurance premium and shall forthwith furnish the body corporate with proof thereof from the insurer.
(e) The trustees shall, on the written request of a mortgagee and satisfactory proof thereof, record the cession by any owner to such mortgagee of the owner's interest in the application of the proceeds of the policies of insurance effected in terms of rule 29 (1) (a).

(2) At the first meeting of the trustees or as soon thereafter as is possible, the trustees shall take all reasonable steps-

(a) to insure the owners and the trustees and to keep them insured against liability in respect of-
(i) death, bodily injury or illness; or
(ii) loss of, or damage to, property,
occurring in connection with the common property, for a sum of liability of not less than one hundred thousand rand, which sum may be increased from time to time as directed by the owners in general meeting; and

(b) to procure to the extent, if any, as determined by the members of the body corporate in a general meeting, a fidelity guarantee in terms of which shall be refunded any loss of moneys belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insured person being any person in the service of the body corporate and all trustees and persons acting in the capacity of managing agents of the body corporate; and (refer to - Fidcure guarantee solution)

(3) The owners may by special resolution direct the trustees to insure against such other risks as the owners may determine.

(4) The owner of a section is responsible for any excess payment in respect of his or her section payable in terms of a contract of insurance entered into by the body corporate: provided that owners may by special resolution determine that the body corporate is responsible for excess payments in respect of specified damage (new rule 2008) See and below on excesses.