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INSURANCE MATTERS
Thanks to the members for these contributions and their willingness to share this information with their fellow members.
"PROGRESS THROUGH SHARING"
A) LEAKING/ BURST PIPES
In order to establish some clarity on the much-argued burst / leaking pipe issue, here is hopefully some explanation on this matter, which you can share with your fellow trustees and owners by looking at the policy wording of CIA and C-Sure, which pertains to bursting of pipes:
CIA POLICY WORDING
Sudden and unforeseen bursting of water tanks, water apparatus (excluding geysers, which are more specifically insured under Section M - geyser Maintenance, and boilers) or water pipes, including damage thereto, but excluding loss or damage to any property caused by or aggravated by;
a) wear and tear or gradual deterioration, rust, corrosion, mildew or damp,
b) subsidence and landslip,
c) the insured's failure to take reasonable precautions for the maintenance and safety of the property insured and for the minimization of any destruction or damage.
C-SURE POLICY WORDING
Sudden and unforeseen bursting, overflowing or escape of water or oil from tanks, apparatus or pipes including any fixed water or oil-fired heating installation including damage to such tanks, apparatus or pipes
but excluding all damage as a result of wear and tear and gradual deterioration.
So, quite clearly, a leak or drip or something "not sudden" would not be covered, specifically a leak caused by say a "pin-hole" or other deterioration over time.
TO SUMMARISE IN A NUTSHELL
1 ) BURST PIPE WITH RESULTING DAMAGE
Insurer should pay for the locating, repair of the pipe as well as the "putting back" e.g. re-tiling and replace any other "resulting" or "consequential" damaged areas e.g. ceilings damaged, carpet damaged etc.
2 ) DETERIORATED PIPE, SLOW LEAK, DAMP OVER TIME
Not an insurance claim - no sudden water damage, loss caused by deterioration.
3 ) DETERIORATED PIPE, BUT SUDDEN "COLLAPSE" OF PIPE - SUDDEN APPEARANCE OF WATER EG RUNNING, POOL OF WATER, FLOW OF WATER
Insurance will only pay for the consequential water damage eg the ceiling in flat below that was suddenly damaged. The location of the leak, the repair and the putting back of tiles etc - for the owner or if common property, the bcorps account.
Common water damage seen as maintenance issues, not insurance matters:
bath traps leaking / dripping, shower waterproofing not working well, roots growing into waste pipes and causing damage over time, sealing (silicone beads) needing replacement, rising damp, roofing needing repairs etc.
Mike Addison
ADDSURE
email mike@addsure.co.za website ww.addsure.co.za
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B) CHANGE THE RULES
The following is an extract from the e-mail received from Dave Heron which was included in our Snippets 6/2007.
"There are times when Trustees try to cut costs and besides our management fee they have, on more than one occasion, targeted insurance premiums. Despite our warnings of dire consequences of under insuring they still go ahead. We therefore drafted the following Rule to be inserted into the Management Rules just after 29(1) (a) to read:
"The Trustees shall ensure that the buildings and all improvements to the common property are:
(I) Re-valued by a registered value of property every three years - from the date of establishment of the Body Corporate.
(ii) Full replacement value thereof is adopted into the existing insurance policy."
Herewith response received from members:
1) From Mike Addison
Dear Mr / Ms Heron
Nice to see some good thinking about the issue of valuations by professional valuers.
Personally, I like what you say and as you are aware, we do preach professional valuations all the way, however, one needs to look at the size and practical issues around determining values for each body corporate. I think to prescribe this accross the board would not be a good idea as many smaller body corporates eg 2 or 3 units, would not need a valuer. Two owners (if they comprise the whole body corporate) can agree to a replacement value together for example without needing to employ a professional. Also, a very large block, say a tower block - If a trustee, one would want to ensure that the building is professionaly valued or at least reviewed professionally every year. So it depends from situation to situation.
I do agree though, this rule could maybe be added or PMR 29 amended specifically to your body corporate's need or your "wording" as a recommended template maybe, with the touching up / blessing of the legal guys.
It is our view that PMR 29 could be more specific about the schedule of replacement values. It is concerning that too many body corporates are relying on the insurance company's schedule and their inflation increase instead of applying their minds to what the schedule should reflect. The schedule of replacement values should be the trustees / managing agents interpretation of the determined value (by a valuer hopefully) then set out in a well prepared schedule. The insurance company's schedule should mirror this, not the other way around. This is Addsure's firm view. This rule, being very loose in my opinion, allows for general lack of application in this very important area.
The more recent proposal that multi-tiered body corporate structures be introduced further amplifies the need to tidy up this area of the prescribed management rules.
Can you just imagine what schedules could look like when policy premiums are split to deal with different tiers? One needs to get this right and again we will reitterate the need to strip away (notionally of course) the common areas to determine the replacement values of each section, garages and any other specifics. If one works in columns, it all falls into place.
One needs to find the right balance in keeping this schedule simple and easy to understand with not too much detail yet with enough information for anyone to understand so that owners can easily determine whether their sections are adequately insured or not.
Look forward to seeing other views, opinion. We hear about proposed changes to the "excess" issue but thats another story altogether!
Mike Addison
ADDSURE
email mike@addsure.co.za website www.addsure.co.za
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2) From Constant Laubscher (His e-mail to Mike Spencer)
Dear Mr. Spencer,
May I share a few points with you as a seasoned operator in the Sectional Titles industry.
Section 37 (1) (f) of the Sectional Titles Act, 95 of 1986, dealing with the duties of Bodies Corporate states that they are “to insure the building or buildings and to keep it or them insured to the replacement value thereof against fire and such other risks as may be prescribed”.
The Act was obviously promulgated to protect owners of sections in Sectional Title complexes against unscrupulous operators but no one ever took the trouble to inform owners on how to obtain a replacement cost valuation. The Act can therefore only be half effective as it appears to be much of a cowboy operation to determine the correct values for insurance purposes. As a valuer, you would know that one should not use single rate “valuations” for this purpose as is the widespread custom these days.
In my view the Act has failed property owners in Sectional Titles if one were to compare it with the National Credit Act. When a property is to be insured, the onus is on the owner to provide the insurer with the correct sum insured. Can one expect all property owners to know the correct process to achieve this? In the majority of cases the property owner is left at the mercy of the insurer unlike with the NCA where the lenders have to do some real “tap dancing” to stay in the clear.
As purveyors of replacement cost valuations we have, in collaboration with one of the largest valuation concerns in South Africa, developed a system whereby a complex, once properly assessed for its replacement value, thereafter only needs to be monitored on an annual basis to stay in line with possible escalations in the building cost and other factors which might influence the validity of the original assessment. This would to a large extent eliminate the necessity for expensive annual valuations. If I remember correctly, you also tried a similar system in the past but with little success, for the simple reason that the less informed are always more “knowledgeable” than the informed.
Nevertheless, it has on several occasions been suggested to us by other NAMA members that it should be made compulsory to have complexes comprehensively assessed on a regular basis to eliminate the possibility of under-insurance or even over-insurance for that matter! We are in the process of starting discussions with Professor Graham Paddock as well as other important contributors to the Sectional Title industry, in this regard.
Your opinion on the above would be much appreciated.
Mirfin Valuation Services
Affiliated member of NAMA
Tel.: 0861 647 346
E-mail: constant@mirfin.co.za
Web: www.mirfin.co.za
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