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STRATA PLAN: OWNERS CORPORATIONS MUST BRACE FOR INSURANCE RISES

Strata Plan expects Owners Corporation insurance premiums to rise dramatically over the next course of renewals following stern warnings from strata insurers that they will need to compensate for the increased risk in insuring buildings with suspect cladding.

The widespread use of non-compliant cladding as identified by an audit of buildings in Melbourne following the 2014 Lacrosse Tower fire in Docklands in recent decades – and the difficulty in identifying it simply by looking at it – has led insurance companies to a position that Aluminium Composite Panel (ACP) cladding will be considered non-compliant unless proven otherwise.

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The 2014 Lacrosse Tower fire in Docklands and the more recent, more destructive fire at Grenfell Tower in London, which killed at least 80 people, were both fuelled in some part by the non-compliant and flammable cladding which was used on the external walls of the buildings.

At a recent strata insurance seminar, Strata Plan staff learned more about the position of different insurers on cladding and how it was set to effect premium prices.

Strata Plan’s Insurance Specialist Kelsey Mitchell said that owners will face more questions around the materials used in the construction of their building, higher premiums if their building is covered in cladding and potentially being offered no terms in that cladding is found to be defective.

“It’s obviously a pretty scary scenario, after the fire in London we received a lot of calls here at Strata Plan from customers who wanted to know if their insurance covered them for fire and if their building had the same cladding,” Ms. Mitchell said.

“It’s sparked a lot of questions, so now insurance companies want to know a lot more about the buildings they are insuring. What is the cladding? What’s the percentage of it on the building? Where is it located and where was it sourced from?

“So they’re putting a lot more pressure on Owners Corporations and managers to have a lot of that information on hand to be able to provide back to the insurers.”

What insurers will expect from lot owners and their Owners Corporations if defective cladding is on their building remains unclear, however at a bare minimum insurers will expect Owners Corporations to investigate their cladding before offering terms.

“Depending on the percentages and how much of a risk it is, insurers might just increase the premiums or put a higher excess on the policy,” Ms. Mitchell said.

“They could also just put a special condition on the policy to say that they’re not going to cover a claim if it’s caused by a cladding issue.

“If you have concerns about the cladding on your building you should call Strata Plan [on 1300 278 728] and if we don’t already have that information, we will already be trying to find it. Owners Corporations can also get testing done to have 100 per cent confirmation.”

Once the type of cladding on a building is known, Ms. Mitchell said it was vital that the building’s insurer is notified, adding that disclosure of defects of any kind was a massive responsibility for any Owners Corporation.

“The duty of discolusre is that the insured – in this case the Owners Corporation – has a duty to let the insurer know of any defects or issues that could affect the insurance f the building or lead to a claim,” she said.

“It could be that there are certain tenants or occupants at the property that aren’t in the best interests of the Owners Corporation or disclosing any known defects at the property just to make sure that in the instance that there is a claim they are aware of any issues.

“If an Owners Corporation knows there is a major defect and they were trying to repair it and didn’t disclose it and there was a claim that was found to be caused by this known defect, the insurance company could simply say they’re not covering the claim.”

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