Who's Responsible for Insuring Your Property Upgrades?

When sectional title owners invest in enhancing their units with luxurious upgrades, a critical question often arises: who bears the responsibility for insuring these improvements? Understanding the distinction between what the body corporate covers and what remains the owner's responsibility is essential for comprehensive protection.

The Body Corporate Insurance Mandate

The body corporate holds a clear legal obligation to ensure common property and all built sections to their full replacement value. This responsibility forms the foundation of collective property protection within sectional title schemes. However, the scope of this cover has defined boundaries that every owner should understand.

The insurance cover extends to all areas beyond the median line running through the outer walls, ceilings, and floors of individual sections. This includes critical structural elements such as exterior wall surfaces, all exterior doors and windows, roofing over registered sections, complex entrance gates, and standard geysers installed as part of the original construction.

What Falls Outside Body Corporate Cover

Individual owners often invest substantial amounts in personalising and upgrading their units. While these enhancements add significant value and comfort, they fall outside the scope of standard body corporate insurance. The following upgrades require separate consideration:

Private swimming pools installed within sectional boundaries represent a significant investment that owners must protect independently. Enhanced security features, including specialised alarm systems, security gates, and reinforced doors, remain the owner's responsibility to insure. Outdoor additions such as custom awnings, carports, and entertainment areas like lapas or pergolas require individual cover consideration.

Climate control systems, including sophisticated air-conditioning installations, represent another category of owner-installed upgrades. Similarly, luxury interior finishes, from imported tiles and custom cabinetry to high-end appliances and designer fixtures, extend beyond basic body corporate cover.

Taking Responsibility for Your Investments- Insuring Your Property Upgrades

Owners who wish to ensure comprehensive protection for their unit upgrades have options available. The most straightforward approach involves including these improvements in the master policy, with the owner bearing the additional premium costs. However, this requires proactive communication with the trustees.

Owners must formally report the cost and nature of their upgrades to the trustees in writing. This documentation should include detailed descriptions, photographs, and current replacement values. Accuracy in reporting ensures adequate cover and prevents potential disputes during claims processes.

Professional Valuation Considerations

For substantial or complex upgrades, professional valuation services may prove beneficial. Specialised assessors can provide accurate replacement cost estimates that account for current market conditions, material costs, and installation expenses. These valuations protect both the owner and the body corporate by establishing clear, defensible values for insurance purposes.

It's important to note that professional valuation of individual unit upgrades typically attracts additional fees beyond standard body corporate valuation costs. Owners requesting this service must facilitate complete access to their units on scheduled inspection dates, ensuring valuers can accurately assess all improvements.

Planning Your Upgrade Strategy

Before undertaking significant unit improvements, prudent owners should consult with their trustees or managing agents about insurance implications. Understanding cover gaps before installation allows for seamless insurance arrangements and prevents unpleasant surprises during claims scenarios.

Maintaining detailed records of all upgrades, including receipts, contractor information, and photographic documentation, creates an invaluable resource for insurance purposes. These records not only facilitate accurate valuation but also streamline any future claims processes.

While body corporate insurance provides essential baseline cover for structural elements and common property, individual unit upgrades remain firmly in the owner's domain of responsibility. Proactive communication with trustees, accurate documentation, and appropriate insurance arrangements ensure that your valuable investments receive the protection they deserve. Remember, the modest cost of extending cover for upgrades pales in comparison to the potential financial loss of being underinsured in the event of a disaster.

When Trustees Pay the Price: Understanding Personal Liability in Underinsurance Cases

The role of a body corporate trustee carries significant responsibility, including ensuring adequate insurance cover for the scheme. What many trustees don't realise is that they can face personal financial liability when underinsurance occurs, even when trustee liability cover exists. Understanding how this happens is crucial for anyone serving in this capacity.

The Scenario That Creates Personal Liability

Consider a typical situation that unfolds across communities in Durban, Pretoria, and Cape Town with alarming regularity. Despite insurance valuations being viewed as an unwanted expense, obtaining professional valuations every three years is legally mandated and essential. When trustees attempt to save costs by skipping valuations or selecting the cheapest valuer without proper vetting, they unknowingly set in motion a dangerous chain of events.

A Case Study in Consequences

Imagine a body corporate that proceeds with a valuation, selecting its valuer based purely on the lowest quote without verifying qualifications, experience, or professional indemnity insurance adequacy. The valuer provides a replacement cost calculation, and the body corporate establishes its sum insured accordingly, let's say R15 million for this example.

Six months later, disaster strikes. A unit suffers extensive fire damage, and the owner lodges a claim for R2 million. The insurance company appoints a loss adjuster to investigate. During their assessment, the adjuster discovers the complex's true replacement value is R25 million, and the body corporate is underinsured by 40 per cent.

Applying the averaging principle, the insurer pays only 60 per cent of the claim: R1.2 million instead of the full R2 million. The affected owner faces an R800,000 shortfall and, understandably frustrated, seeks legal advice.

The Recovery Chain Reaction

The owner's attorney pursues the body corporate for the shortfall. The body corporate, in turn, seeks recovery from the valuer for providing flawed professional advice. In this scenario, the valuer made a straightforward calculation error, a mistake with expensive consequences.

Here's where the situation becomes critical. The valuer holds professional indemnity insurance, but only for R1 million. After R400,000 goes toward legal defence fees, only R600,000 remains available for payout. This leaves a R200,000 gap that the body corporate must recover elsewhere. If the valuer lacks personal funds and faces insolvency, the recovery chain reaches its final link: the trustees personally.

Why Trustee Liability Cover May Not Help

Many trustees assume their trustee liability policy provides complete protection. However, insurers can legitimately decline personal liability claims when trustees demonstrate gross negligence, specifically, appointing an inadequately insured valuer without conducting due diligence.

The Critical Calculation Trustees Must Understand

Professional valuers performing insurance assessments for residential complexes and commercial buildings should maintain professional indemnity cover of at least 10 per cent of the property's replacement value, with an absolute minimum of R20 million. This threshold accounts for the reality that a significant portion of indemnity cover addresses the valuer's defence costs before any compensation payments.

Therefore, a complex with a R100 million replacement value requires a valuer holding substantially more than R5 million in professional indemnity insurance. Selecting a valuer with insufficient cover, regardless of attractive pricing, creates unacceptable risk for trustees personally.

The Fiduciary Duty Framework

Trustees bear a fiduciary duty to ensure comprehensive scheme insurance. This duty extends beyond simply arranging cover; it includes verifying that professionals appointed to determine insured values carry adequate protection themselves. This verification protects the body corporate and shields trustees from personal liability exposure.

Protecting Yourself as a Trustee

The temptation to save the body corporate relatively small amounts, sometimes as little as R500 to R1,000, by appointing cheaper, less qualified valuers can expose trustees to catastrophic personal financial risk. Given that trustees typically serve with minimal or no compensation, accepting such risk for marginal cost savings makes no sense.

When selecting valuers, trustees should request and verify:

1. Current professional indemnity insurance certificates

2. Confirmation of cover amounts relative to the scheme's size

3. Professional qualifications and relevant experience

4. References from similar-sized schemes

5. Membership in recognised professional bodies

6. Taking Action

Trustees must approach insurance valuations as critical risk management exercises, not grudge purchases to be minimised. The modest difference in cost between properly qualified valuers and budget alternatives pales in comparison to potential personal liability exposure.

Remember: trustees work hard managing schemes for little compensation. Don't leave your financial future in the hands of an underqualified valuer selected purely on price. Protect yourself by ensuring proper due diligence at every step of the insurance process.