Narrowing of cover on strata insurance policies exposes committee members to new liabilities

Earlier this month, Australia’s largest strata insurance underwriting agency, CHU released its new product disclosure statement (“PDS”) that will apply to all policies issued after 1 October 2023.

In June we released our strata insurance market update. It concluded that premiums and excess structures were continuing to increase, and cover was becoming more restrictive.

As an exemplar of narrowing coverage, the new CHU PDS has excluded committee members as beneficiaries of cover, under the public liability section of the policy. We discuss the roles, responsibilities and nuances of the strata insurance market in our fundamentals article titled “understanding the distinct roles of insurers and intermediaries in the strata insurance marketplace”.

Public liability under a strata insurance policy

Public liability covers claims brought against the strata plan and its office bearers (the policy “beneficiaries”) for their legal liability for personal injury or property damage. In the circumstances of CHU’s PDS revision, personal injury includes “defamation”.

The cover operates as a section of a traditional strata insurance policy. Its purpose is to indemnify the beneficiaries for legal costs to defend the allegations, and in the event that the plan is legally liable, the policy will pay any damages and adverse costs of the claimant.

Office bearers’ liability

This coverage is offered under a separate section under most standard market strata policies. Office bearers’ liability covers actions brought against office bearers (natural persons such as committee members) alleging that they have committed a wrongful act in their capacity of administering the owners’ corporation. The indemnity intended by the coverage section is for defence costs and, in the event of liability materialising, damages and adverse costs.

Like most standard market wording the coverage section will not respond to claims for bodily injury and or property damage. More specifically however this section of the policy also will not respond to any allegation against an officer bearer “arising out of a publication or utterance of a libel or slander or other defamatory or disparaging material”.

Limitation of cover available to committee members

Simply put natural persons will not have coverage for defamation actual or alleged under the CHU policy. The concern, however, is broader than that: we flag for instance a situation when a committee member is joined personally to proceedings brought by a claimant who has been injured in a common area (i.e., an area which is undergoing remediation) or where a third party’s property is damaged.

We have not yet seen other insurers take this approach, however it is common for insurers to periodically revise their policy wordings to cater for claims frequency and trending.

This limitation of cover has implications for committee members. What becomes more prevalent however is how essential an experienced impartial risk advisor is to empower owners’ corporations to make informed decisions beyond price.

Strata insurance product disclosure statements (the document in which insurance cover is based) are generally 40-50 pages long. They are complex and have many policy sections, each with their own conditions and exclusions. To the untrained eye, they are hard to navigate and vary significantly. What is appropriate under one form to one strata plan may not be appropriate for another.

It is always common that owners’ corporations place a significant emphasis on price. However, what ought to be the objectives is adequate, appropriate cover priced competitively. The agency or insurer should also be considered:
  1. are they strata specialists?

  2. how long have they existed?

  3. how active are they in the strata insurance market?

  4. do they offer risk management solutions?

  5. are they an insurer or underwriting agency? If the latter:

    • who owns them?

    • is there any relationship with the underwriting agency and the risk advisor/broker, and

  6. most importantly, what is their financial strength and what is their reputation with claims handling?

When procuring strata insurance, you must seek advice that includes detailed coverage recommendations, risk management strategy, market advocacy (demonstrated negotiation with insurers) and claims advocacy (hands on claims management). Engagement of risk advisors ensures the owners’ corporation is better informed. It ensures that natural persons are empowered to make the right decisions and not be unwittingly exposed to liabilities brought about by their failings to appropriately transfer risk. This responsibility should fall with the advisor, not the owners’ corporation, its executive panel members or the owners themselves.

Our Team is available to discuss enquiries and demonstrate our unique value proposition to the strata industry. Please contact us via the form below to discuss your needs.

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