The role of the insured in sectional title insurance

Oct 18 2017

An insurance policy is always issued by the insurer who agrees to carry certain risks on behalf of the insured. The insured is the person or party who has an insurable interest in the property that is to be protected under the insurance policy.

In a domestic insurance policy this is quite simple. A man – let’s call him Mr Smith – owns a car and a house; he decides to take insurance on both. The insurance policy will be issued in the name of Mr Smith and will specify the property and vehicle details. If Mr Smith has any form of finance agreement on either the house or the vehicle or both, the financial institutions should be named in the policy document. The financial institutions are recognised as having an insurable interest in the property by way of their financial involvement in the ownership of the property. In the event of a claim, the insurer will make restitution for the loss in accordance with the current financial arrangements relating to the ownership of the property.

Sectional title insurance

Sectional title property insurance is somewhat different. By virtue of the fact that there are multiple persons involved in the ownership of the insured property, the policy must therefore be issued in the name of all relevant parties. In view of this, a sectional title property insurance policy will most likely have the name of the insured listed as follows:

ABC Body Corporate, all owners and all mortgagees of registered mortgage bonds over the units in the scheme for their respective rights and interests, hereinafter referred to as ABC Body Corporate.

It is noted that the policy that is in place to protect the property of the insured only extends to include indemnification for the parties listed under the name of the insured. Bear in mind that there are no individual names listed as all persons are include only in their capacity as a member of the body corporate.

This principle is important to understand when considering that insured property is very often occupied by tenants under a rental agreement with the owners. The tenants enjoy little (if any) cover under the body corporate insurance policy as they have no insurable interest in the insured property.

Then damage or a loss occurs, the insurer is obliged – in terms of the policy – to indemnify and compensate the property owners only, not the tenants. This is particularly relevant when the insured property is rendered uninhabitable as a result of an insured peril. There is no obligation on the part of the insurer to compensate the tenant by arranging or paying for alternative accommodation. In addition, the body corporate policy provides no cover for the personal property of tenants. The personal property of the tenants must be insured under their own domestic insurance policy.

This principle also extends into the area of third party injury or property damage. The body corporate does not provide indemnification to the third party but rather to the insured for losses they suffer as a result of the third party claiming against the insured. If a third-party vehicle is damaged by the body corporate’s gate for example, the third party may not claim against the body corporate policy. The third party must claim against their own insurance after which letters of demand may be submitted to the body corporate by the third party for restitution. It is at this point that the trustees will submit the letter of demand to the body corporate insurer as a claim.

So, while the tenants or third party may feel they have rights to compensation for their loss under the body corporate policy, the policy is actually in place to protect the insured, i.e. the property owners.

 

Author: Bruce Gibson, Addsure

Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069

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