Three Critical Insurance Documents That Require Proper Authorisation

In sectional title scheme management, certain insurance documents carry significant legal weight and require specific authorisation procedures. Understanding these requirements protects schemes from unauthorised decisions, ensures compliance with legislation, and prevents complications that could invalidate important processes. Three particular document types demand special attention to proper signing procedures.

Document One: Broker Appointment Letters

When appointing an insurance broker to represent your scheme, the process must follow prescribed management rule 10. This regulation stipulates that any document about sectional title affairs requires two authorised signatures: either two trustees, or one trustee together with the managing agent.

This dual-signature requirement serves multiple protective functions. It ensures legal compliance and creates checks and balances that reduce the risk of the appointment being challenged or reversed. The requirement creates accountability and prevents unauthorised or unilateral decisions that could breach Section 58 of the Property Practitioners' Act, which governs relationships between property practitioners (including managing agents) and suppliers such as insurance brokers.

Without proper authorisation, broker appointments can be contested, leading to disputes about commission payments, policy validity, and service agreements. In schemes across Johannesburg and Cape Town, improperly authorised broker changes have resulted in cover gaps and legal disputes that could have been easily avoided with proper procedure.

Best Practice: Never delegate broker appointment authority solely to your managing agent. Ensure that at least two trustees review and sign the appointment documentation, or that one trustee signs alongside the managing agent. Keep copies of properly executed appointment letters in the scheme's permanent records.

Document Two: Insurance Claim Submissions

The submission of insurance claims requires the same rigorous authorisation process as broker appointments. Whether dealing with a traditional paper claim form or authorising a claim through a digital platform or emailed link, the signatures of two trustees or one trustee and the managing agent are mandatory.

This requirement exists because claim forms are legal documents establishing contractual claims under the insurance policy. Several critical reasons support this signing requirement:

Legal Validity: Under the Sectional Titles Schemes Management Act, the body corporate is the insured party. The claim form represents the body corporate's formal notification to the insurer that a loss has occurred and compensation is requested. Without proper authorisation, the insurer could question whether the claim is legitimately lodged by the insured party.

Dispute Prevention: Properly signed claims help prevent disputes that could arise if the claim form is challenged during litigation or negotiation. If an insurer questions who authorised a claim or suggests it was submitted without proper authority, the scheme's position becomes significantly weakened.

Financial Protection: The dual-signature requirement protects against fraudulent claims or claims made without proper consideration of the scheme's best interests. It ensures multiple parties have reviewed and approved the claim before submission.

Schemes in areas like Pretoria and Durban have encountered situations where improperly authorised claims created complications during the settlement process, delaying payments and requiring additional documentation to prove authority.

Document Three: Agreement of Loss

After a claim is assessed and the insurer agrees to settle, an agreement of loss document is often issued, particularly for cash settlements rather than repairs arranged directly by the insurer. This document requires careful handling and proper authorisation.

The agreement of loss should be signed by two trustees or one trustee and the managing agent, following the same pattern as other scheme documents. However, when the claim pertains to an individual owner's section, an additional layer of complexity arises.

The affected owner should sign the agreement acknowledging the settlement amount, but this signature should not occur in isolation. The trustee or managing agent's signatures remain necessary to attest to the document and confirm the body corporate's agreement to the settlement terms.

Critical Financial Procedure: To ensure transparency and proper fund handling, insurance payouts should initially be directed to the body corporate's bank account. This creates a clear audit trail and ensures proper oversight of insurance proceeds. Subsequent distributions to individual owners or contractors can be managed from the body corporate account, but starting with this centralised receipt ensures proper financial controls.

This procedure protects against situations where funds are misdirected, where disputes arise about settlement amounts, or where questions emerge about whether payments were properly received and allocated.

Why These Procedures Matter

These signing requirements aren't bureaucratic obstacles—they're essential safeguards that protect the scheme's interests and ensure legally sound, transparent, and accountable processes. Prescribed management rule 10 exists specifically to prevent unauthorised decisions and ensure collective oversight of important scheme matters.

Trustees who follow these procedures demonstrate good governance and fiduciary responsibility. They protect themselves personally from accusations of improper conduct and protect the scheme from challenges to important decisions. Managing agents who insist on these procedures demonstrate professionalism and protect both their clients and themselves from potential disputes.

In an environment where sectional title schemes face increasing scrutiny regarding governance and financial management, proper documentation procedures aren't optional—they're fundamental to responsible scheme management. Taking the extra time to secure proper signatures on these three Critical Insurance Documents types protects everyone involved and ensures that when disputes arise, the scheme's position is legally sound and well-documented.