Who is Responsible for Building Defects?

Strata insurance covers “sudden and accidental damage” and most policies will exclude cover for rectification of faulty or defective materials or workmanship.

Building Defects:

Depending on your situation and on the kind of building defect you are seeking to rectify, you may need to consult a legal professional for advice on what route you should take.

One classed building defect is concrete cancer, and this needs to be disclosed to insurers as part of your Duty of Disclosure.

Concrete Cancer:

Concrete cancer is caused when steel embedded in the concrete starts to rust. This causes the steel to expand up to three times its original volume and crack the concrete, thus, exposing more of both the steel and concrete to the elements.

If water penetrates through the cracked cement, it then rusts and the steel embedded deeper in the cement is exposed, and the whole process repeats until the building becomes structurally unsound.

If there is a failure on your part to notify the insurer of a pre-existing defect (such as concrete cancer), it may mean that in certain circumstances you may find yourself in, the insurer is entitled to avoid the contract altogether.

Or the insurer may be entitled to reduce the liability in respect of a claim to the amount that would place in the insurer in a position in which they would have been in if the failure had not occurred or the misrepresentation had not been made.

Question from NSW: Our building has engaged for repair works to be done on faulty workmanship. Can we get it claimed under strata insurance or do we the lot owners have to fork out the repair costs?

Question Summary:

Our Strata Manager and Strata Committee had approved a person unknown to the Owners Corporations to carry out a $90,000 Major Capital Works Job. This is to replace 12 large planter boxes and a 300 square meter courtyard. This contractor did not construct the stormwater runoff correctly and when storms hit, it resulted in a unit being flooded.

They held an Emergency General Meeting and stated that all the lot owners needed to contribute to this $30,000 invoice. They did not mention anything about claiming the repairs costs against our strata insurance policy.

The Strata Manager and Strata Committee proceeded to appoint a plumbing company a $30,000 job to remediate the tradesman’s mistake.

What were the options available to our Strata Manager and Committee? Were they right in to pass the costs over to us lot owners? Is there any requirement for them to pursue a claim under strata insurance before approaching us to recoup the costs?

Answer from Strata Insurance Solutions:

Strata insurance covers “sudden and accidental damage” and as far as we are aware of, all policies exclude costs associated with rectification of faulty workmanship.

In this scenario, an insurance claim is not an applicable option as the repair works are regarding rectifying faulty workmanship.

The strata committee may need to obtain legal advice in relation to whether a claim may be made against the original contractor who installed the planter boxes.

Question from NSW: If we find a building defect issue after 7 years, is it still covered by insurance?

Question Summary:

After 7 years, we have found out that a balcony overhead structure was poorly built and is failing. Are we able to ask the insurer if this defect is covered by building insurance?

Answer from Strata Insurance Solutions:

Strata insurance covers “sudden and accidental damage” and most policies will exclude cover for rectification of faulty or defective materials or workmanship.

Builders warranty cover is available and does provider cover for defective workmanship for up to 6 years from the completion of work.

Unfortunately, in this scenario, it is our understanding that the prospects of lodging a successful claim against the strata insurer are very narrow and limited.

NSW: If a floating floor has been damaged by water entering the external wall of the building, can a claim be made under strata or building insurance? Who is held responsible?

Question Summary:

The weep holes in the external wall of our building were blocked and when water entered, it prevented it from escaping. Thus, a section of the floating floor of a lot owner’s unit was damaged.

Although the water issue has now been resolved, the lot owner has made a claim for damages compensation to repair or replace the damaged floating floor, gyprock, skirting and painting. To our knowledge, the floating floor had not been approved by the body corporate prior to the lot owner having it installed.

Because this floor covering is not a part of the original build of the building and was not approved before installation, as it was damaged by the fault of common property, is it the responsibility to be compensated by the building insurance?

Answer from Strata Insurance Solutions:

There are a number of issues to consider here. The first thing to establish is – does the policy provide any cover for floating floors?

In New South Wales, the legislation states that the Owners Corporation are not required to insure temporary flooring (i.e. floating floors). If there is no cover for it, the lot owner will not have a valid claim under the Property section of the Strata Insurance policy.

Some Strata Insurance policies do automatically add cover or provide the optional benefit to insure floating floors. This cover may be convenient for lot owners as it may mean that they do not need to lodge a claim under both their contents insurer and strata insurer for one event and thus, not have to pay two excesses.

This can however have an unintended consequence – in the event where a claim is made and the floating floors are the only items damaged and the lot owner has contents insurance, some contents insurers will only provide cover for items excluded by strata insurance; this can mean that a claim must be made on strata insurance even if there is a desire (by either the owners corporation or the lot owner) that the claim is lodged under contents insurance.

In the scenario that the floating floors are covered by the strata policy, the lot owner would have contributed towards the policy and thus, has an insurable interest. This may allow them to claim for the damaged floors under the strata insurance policy.

If they are covered, we are not aware of any provisions in the strata insurance policies which afford the insurer the opportunity to exclude cover because the owners’ corporation had not approved the installation of the floating floors.

The approval process for installing temporary flooring and claiming for said flooring under a strata insurance policy are two completely different issues.

In the scenario where the floating floors are not covered by the Property section of the Strata Insurance policy, and the lot owner is seeking to claim compensation due to negligence of the owners’ corporation, the Public Liability section of the Strata Insurance policy may be applicable.

It can provide cover in instances where the lot owner is able to demonstrate that the owners’ corporation were legally liable for the damaged flooring (i.e. negligence). Do note that this will be subject to the insurers’ terms, conditions, and exclusions.

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Tyrone Shandiman
Strata Insurance Solutions
LINK, Level 1, 57 Berwick St,
Fortitude Valley QLD 4006
Ph: 1300 554 165
E: tshandiman@iaa.net.au

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

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