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Property Law News October 2011
Clarifying the nature of excess payments on Home Owners Warranty insurance claims
The recent Court of Appeal decision in Vero Insurance v Owners of Strata Plan 69352 [2011] clarifies the responsibilities of lot owners and the body corporate with respect to the payment of excess on claims under Home Owners Warranty (HOW) policies
Where a strata building comes within the Home Building Act (i.e. including where the building is more than 2 storeys in height) HOW insurance provides indemnity for the owners corporation of a Strata Plan for the cost of repairing or rectifying building defects in Strata Plan common property. Such indemnity subsists for a period of 7 years from the date that construction of the Strata Plan is completed, and covers breaches of statutory warranties in respect of the common property.
The Strata Plan in question was located in Chatswood, and consisted of 201 residential units. Vero Insurance issued identical HOW certificates of insurance for each of the residential lots in the Strata Plan. A standard term of the relevant HOW insurance policy provided that: “YOU must pay the first $500.00 of each claim [under the policy]”. The policy defined “YOU” as “the person on whose behalf the work under the contract is being done, together with any successor in title to that person”.
In July 2006, a claim was lodged by the owners corporation for defective works affecting the Strata Plan common property, in the amount of approximately $85,000.00. Vero rejected this claim, arguing that, since an excess of $500.00 was payable in respect of each and every person on whose behalf the repairs and rectification works were undertaken, the excess chargeable under the policy amounted to $500.00 for each and every one of the 201 lots in the Strata Plan and therefore totalled $100,500.00, being considerably more than the total value of the claim.
At first instance, in the CTTT, it was held that only one excess of $500.00 was in fact payable in respect of the claim, and not an excess for each of the 201 lots. Vero appealed this decision. In the Court of Appeal, Vero pointed out that the policies in question were issued pursuant to the requirement in the Home Building Act 1989 that HOW insurance be provided in respect of each individual dwelling in the Strata Plan. That is, the relevant HOW policies covered each of the individual lots in the Strata Plan separately. Since the common property that was affected by the defects in issue was not itself a “dwelling”, Vero contended that the common property was owned beneficially by the individual lot owners as tenants in common in equal shares. Further, Vero sought to argue that the owners corporation was itself not a beneficiary or insured pursuant to the HOW policy.
The Court of Appeal rejected Vero’s arguments, holding that the owners corporation was entitled to make a claim under the HOW policy individually and in its own right in respect of the common property. The Court held that the insurance schema established by the Home Building Act and Strata Schemes Management Act 1996 was designed to allow the owners corporation to claim under HOW policies in its own right. The Court upheld the decision of the CTTT, holding that only one excess of $500.00 was payable in respect of the claim.
