2022 marked a significant change by insurers in their approach to insuring buildings that contain defects.  It is now becoming inherently difficult to insure buildings that have defects, this article is designed to provide guidance on how to avoid becoming uninsurable due to defects.

If you are new to the world of defects and what it means to your strata building, read here.

What should you do to avoid being uninsurable?

Here are recommended insurance considerations if your building contains defects:

• Consider the timing of your policy expiry when conducting defects inspections. If you are considering a defects inspection and have no specific concerns (for example you are conducting an inspection prior to your builders warranty expiring), timing is important. If the report is provided one or two months prior to the policy expiring, it will leave you little time to rectify issues before you are required to disclose them to the insurer (at the policy renewal).
• Don’t bury your head in the sand. If your response to rectifying defects is to take no action, this will have an adverse impact on your insurability. Insurers will take a more favourable approach to buildings that demonstrate a proactive approach to rectifying defects. Outside of any insurance considerations strata buildings have a “duty of care” to prevent injury and damage. There are also obligations in most strata legislation to maintain property in good condition.
• Have a clear and reasonable plan for rectifying the issues. If you have a clear plan to rectify the defects this will greatly improve your prospects of finding insurance. Insurers will be reasonable in their expectations on timeframe to fix issues, but in return they do also expect a building to act with expedience to limit the risk they are exposed to.
• Speak to us (or your insurance broker) as soon as you become aware of defects. Discussing defects with us (or your insurance broker) early means the committee can get advice on what may need to be done to improve your chances of insurability. It can also help the committee to understand the impact defects can have on insurance and provide greater clarity and notice on rectifications that are required. 
• Prevention is the best cure. Regular maintenance of your building will prevent the building from falling into disrepair or becoming defective.

Disclosing building defects

You are required to make disclosures when the policy is taken out, renewed or altered. Your Duty of Disclosure requires you to disclose all things relevant to the insurer’s decision to insure you. Defects are disclosable issues and failure to disclose defects can mean the insurer is able to void your policy.

Beware that insurers may inspect body corporate records, including meeting minutes, to understand when you became aware of defects and whether you have met your disclosure obligations.

Disclosing defects mid-term should be considered on a case-by-case basis. Feedback provided by insurers suggests they prefer an earlier notification of the defects especially where you have concern about the defects not being rectified, prior to the policy expiry, and you want the insurer’s position on offering cover well in advance of your policy expiry. Where it is anticipated the defects will be rectified prior to when your policy expires or is altered the need to disclose defects may not be as pressing.

This is the information we recommend you collate when disclosing defects:

• When was the issue first discovered.
• A Professional opinion in relation to the issue from an appropriately qualified party been requested (such as a builder or engineer).
• Is your building still under builders warranty and have you taken action against the builder?
• A defects rectification plan which summarises the below (including timelines):
  • Steps the Body Corporate has already taken to address the issue
  • What is required to rectify the issue?
  • Have quotes been arranged for rectification?
  • When are repairs planned to commence and finish?
  • Are there mitigating circumstances that are delaying the rectification works?

In the past, Strata Insurance Solutions have come across issues where there are barriers to rectifying defects. Read here to see if this may apply to you.

To read more:

• Why are defects becoming harder to insure? – Part 1
• Why are defects becoming harder to insure? – Part 3