Indemnity insurance - what's covered
An extension of liability cover, Indemnity insurance protects against economic losses incurred due to errors and omissions by trustees which are excluded from liability cover.
Some insurers offer 36 months' retroactive cover from the date of policy inception.
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What's NOT covered
Not covered by Indemnity insurance are losses incurred through acts of gross negligence on the part of the trustees in exercising their fiduciary obligations to the body corporate.
Example:
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An owner holds the body corporate liable for a R 300 000 shortfall due to an insurance claim that was not paid out in full because the body corporate is underinsured.
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The body corporate takes recourse on its valuer for supplying an incorrect replacement cost valuation.
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Neither does the valuer have Professional Indemnity insurance, nor does he have the funds to reimburse the body corporate for the shortfall amount.
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The body corporate holds the trustees liable for the shortfall amount and the trustees claim this amount against the Indemnity insurance.
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The insurer refutes the claim because the trustees are found to have acted in gross negligence by appointing an inadequately qualified valuer against better advice given to them during the procurement process.
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The trustees are liable in their personal capacity to the affected member for the amount of R 300 000.
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What the law says about Indemnity insurance
STSM Regulation 8(4) prescribes that the body corporate must indemnify a trustee who is not a managing agent against all costs, losses and expenses arising as a result of any official act that is not in breach of the trustee's fiduciary obligations to the body corporate.
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