As Committees plan for large maintenance projects or capital additions, it is critical for members to consider how these works interact with existing Strata Insurance policies covering buildings and other common property. Not consulting your Insurer before approving contracts for capital works (such as repainting the building, resurfacing pool areas or carparks, replacing balustrades or major plant and equipment) can leave the Body Corporate without adequate insurance responses if something goes wrong.
Here are our five checklist items to keep in mind for your next major project:
1. Understand strata policy coverage for the proposed cost of works
All major Strata Insurers have policy extensions where alterations, additions and renovations are covered by the strata policy, providing the following criteria are met:
- The value of the proposed works does not exceed an amount between $100,000 and $500,000. This amount varies depending on your Insurer, so check your policy wording carefully. You can ask the Insurer to increase the permitted value of works on a case-by-case basis.
- You notify the Insurer well in advance before works commence and they agree in writing to cover the works. The Insurer will want to ensure the works do not present new or additional risks to those they are already covering.
As a general rule, a strata policy covers insured property damage to the new works (up to the policy limit). The coverage also provides Liability Cover for the Body Corporate but only for events directly caused by the negligence of the Body Corporate. This coverage does not extend to the activities of contractors or their subcontractors.
2. Consult your Lawyer
It is good practice to have all capital works contracts checked by a Lawyer. Once the contract has been approved by the Lawyer, the contract should be provided to the Insurer for their approval.
3. Do not sign before you have agreement from your Insurer
Be wary of signing contracts that waive the Body Corporate’s (and therefore the Insurer’s) rights of subrogation*. If a contractor or their subcontractor makes a mistake that causes property damage or personal injury, then you/your Insurer will want to claim against them/their Insurer. We have seen Bodies Corporate unintentionally put themselves in a position where they cannot make a claim.
4. Are the proposed works included on the Principal Contractor’s Contract Insurance policy?
It is essential for the Body Corporate to insist the Principal Contractor/Builder covers the agreed works for property damage and public liability. They will usually do this via a Contract Works Insurance policy, otherwise known as a Construction or Contractor’s All Risk policy. The Principal Contractor will have either an annual policy or a project-specific policy. The Body Corporate should sight the current policy and provide it to their Lawyer for sign off.
The Body Corporate should be named as an Insured on the Principal Contractor’s Contract Insurance policy. If this is not possible, they should be noted as an additional insured at the very least.
If the Principal Contractor does not have a Contract Works policy in place, then it is likely all liability for property damage and personal injury will fall back onto the Body Corporate and you should do all you can to avoid this situation.
5. Only sign the final contract after it has been checked and agreed to by your Lawyer and Insurer
A final note
To find out more about reducing your risk exposure, feel free to reach out at any time.
State Manager (QLD)