Flood Insurance – A cause for disagreement in strata buildings By Tyrone Shandiman, Strata Insurance Solutions
Take the example of a three-storey building whereby only the ground floor has an exposure to flood and the second and third floors do not. An insurance motion at a general meeting for flood cover with a higher premium may have lower prospects of success over a motion without flood cover for a lower premium, because a majority of owners (i.e. the second and third floors) don’t believe they need flood cover. This can leave the ground floor exposed to a major uninsured loss. Lot owners are responsible for damage inside their lot and notwithstanding, the body corporate is responsible for damage of a structural nature and utility services that do not service one lot. Based on Queensland legislation, lot owners in strata buildings with common walls do not have the option to insure property defined as “building” under the BCCM Act outside of an insurance policy arranged by the body corporate. This is because of the basic principal that insurers will not insure part of a building. A common question we get asked is - What can ground floor owners that want flood cover do to protect their investment? A dispute in relation to whether a body corporate should have flood cover has been before the Body Corporate Commissioner - Winnipeg Grange [2013] and may provide some guidance. In this case two owners in a duplex could not reach an agreement on whether to insure for flood cover. The issues considered by the commissioner was whether not taking out flood insurance was: a. Contrary to the legislative requirements; or b. Unreasonable We will explore both of these items in more detail.
Legislative Requirements
Applicable strata regulation states that damage, for coverage under strata insurance should include “...earthquake, explosion, fire, lightning, storm, tempest and water damage...” While flood cover is not specifically mentioned in the definition of damage, in Winnipeg Grange [2013], the commissioner stated that they “were satisfied “water damage” covers damage from water in different ways and includes flooding.
T
he need for flood cover in multi-storey strata buildings can be a source of dispute within strata communities. Generally, the definition of flood in an insurance policy is the covering of normally dry land with water released or that has escaped from the normal confines of any watercourse, river, lake, creek, reservoir, canal or dam. Australia is currently in a La Nina weather pattern and this brings a higher risk of flooding. Ground floor apartments have a much higher exposure to flood damage and therefore have a greater need for flood cover than apartments in upper levels. 12
UNIT NEWS DECEMBER 2020
Applicable strata legislation also has a provision that “the body corporate may put in place ... additional insurance ... it is required to put in place under the regulation module ...” which allows the body corporate some flexibility in obtaining more than the minimum level of insurance necessary for its particular requirements. For the reasons above the commissioners view was “The legislation requires the body corporate to have sufficient insurance to rectify any damage to the relevant areas to the condition that they were in when new. On the material presented by the parties I do not consider that there is sufficient BECOME A MEMBER TODAY uoaq.org.au
