Protecting Your Scheme Through Professional Indemnity Cover

When trustees contract professional service providers to work on behalf of their community scheme, there's an often-overlooked layer of protection that deserves serious attention: professional indemnity insurance. This type of cover exists to compensate clients when they suffer financial losses due to a service provider's negligent acts, errors, or omissions during the course of their work.

Protecting Your Scheme Through Professional Indemnity - Why Trustees Should Care

While community schemes themselves don't typically need to purchase professional indemnity insurance, trustees have a fiduciary duty to ensure the professionals they hire carry adequate cover. This becomes particularly important given the stringent compliance requirements under the Community Schemes Ombud Services Act and the Sectional Titles Schemes Management Act. These legislative frameworks require trustees to engage various professionals, including managing agents, auditors, property valuers, engineers, and construction contractors.

The question trustees must ask is simple yet critical: if something goes wrong, who pays?

Real-World Scenarios That Demand Attention

Consider the property valuer scenario. Current legislation mandates that trustees insure their scheme buildings for full replacement value, and this valuation must be conducted by a professional valuer. But what happens when that valuer makes a critical error?

Imagine a scheme in Sandton suffers major fire damage. When the claim is lodged, the insurer applies average and discovers the property is significantly underinsured—despite the trustees following the valuer's advice to the letter. Who bears the financial responsibility for the shortfall? Without professional indemnity insurance in place, the scheme may have no recourse to recover this loss.

Similarly, construction contractors are frequently appointed to oversee property developments or improvements. If a contractor's poor advice or workmanship leads to financial loss for the property owners, the scheme needs protection. Engineers who certify the structural integrity of retaining walls must also carry professional indemnity cover. Should their assessment prove incorrect and the insurer repudiates a claim, the scheme could face devastating financial consequences without this safety net.

Beyond Professional Indemnity

It's worth noting that different professionals may require additional insurance beyond professional indemnity. Building contractors, for instance, should carry contract works policies to protect against damage they might cause to the scheme's property while working on the site. Trustees should verify this cover during the contractor selection process.

The Trustee's Due Diligence Checklist

Before engaging any professional service provider, trustees should:

• Request proof of current professional indemnity insurance

• Verify the cover limits are adequate for the scope of work

• Ensure the policy will remain active throughout the contract period

• Consider requiring the scheme be noted as an interested party on the policy

• Obtain copies of insurance certificates for the scheme's records

  
  

This applies particularly to valuers, insurance advisors, structural engineers, and any other professionals whose advice directly impacts the scheme's financial well-being or compliance obligations. Managing agents can often provide valuable guidance in determining which professionals require this cover and what appropriate limits should be.

Trustees serve as the appointed representatives of every owner in their scheme. This role carries significant responsibility, including the duty to implement reasonable precautions that protect both the scheme and its members from potential financial loss caused by third-party negligence.

Verifying professional indemnity cover isn't about distrust—it's about good governance. It demonstrates that trustees are taking their fiduciary responsibilities seriously and implementing proper risk management strategies. In an increasingly litigious environment where professional services can have far-reaching financial implications, this simple verification step can mean the difference between a manageable issue and a catastrophic financial loss for the entire scheme.

Smart trustees understand that protecting their scheme goes beyond securing the right insurance for the property itself. It extends to ensuring that every professional they contract carries adequate cover to make the scheme whole should their advice or work fall short of professional standards.