Apartment ownership presents a positive opportunity for first-time buyers and seasoned investors alike. However, apartment property owners must be aware of the risks of building defects and how it can potentially impact insurance coverage. Recognising the significance of addressing defects early is vital and will impact the insurers risk assessment if transparency and a plan for rectification is evident.
Understanding Common Building Defects
Building defects encompass a broad spectrum of issues, ranging from minor cosmetic imperfections to major structural concerns. Examples of major defects include structural integrity issues, fire protection deficiencies, waterproofing failures, roof drainage problems, safety hazards, and electrical/mechanical/ventilation issues. Notably, waterproofing and fire safety systems remain prevalent defects, with significant implications for insurance coverage.
Impact on Insurance Coverage
Insurance contracts typically exclude coverage for defects, whether known or concealed. However, proactive rectification of defects is essential to maximise the likelihood of obtaining insurance coverage and mitigate the risk of claim denials due to unaddressed issues or lack of maintenance. Insurers evaluate several factors when assessing a building's eligibility for coverage, including the severity of defects, the age of the building, ongoing legal actions, and planned remedial works.
Severity of Defects
Assessing the severity of defects is critical in determining insurance coverage. Minor defects, such as non-structural cracks or minor efflorescence, may necessitate action plans but might not significantly impact coverage. In contrast, major defects, such as structural issues, fire safety deficiencies, or water penetration problems, pose greater risks and may lead to increased premiums or higher excesses. In extreme cases, where defects present significant exposures, specialised insurance terms may be required.
Age of the Building
Differentiation between new builds and existing structures is crucial in assessing insurance coverage. New builds may benefit from defect warranty periods and legal avenues for recourse against builders or developers. Conversely, older buildings may face challenges related to deferred maintenance, deteriorating building components, and statutory warranty periods that have expired.
Information Requirements for Evaluation
Insurers rely on comprehensive information to evaluate defects effectively and consider a solution to insure. This includes professional reports detailing the extent and severity of defects, building contracts outlining remedial works and costs, minutes of Body Corporate meetings documenting decisions on defect rectification, specific details about the defects, proposed remedies and timeframes from industry experts.
Collaboration for Effective Solutions
Addressing building defects proactively requires collaboration between property owners, developers, insurers, and other stakeholders. By providing thorough information and taking decisive action, owners can navigate the complexities of insuring buildings with defects effectively, safeguarding their assets and ensuring peace of mind.
Seeking Expert Guidance
Proactive management of building defects is essential for maintaining insurance coverage, minimising financial risks, and ensuring the long-term viability of strata properties.
If your building has defects and you're unsure about insurance coverage, the expert team at CHU can assist and answer questions. Reach out to CHU today to discuss your strata property insurance needs or visit www.chu.com.au for further information.
Important note: CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) acts under a binding authority as an agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). The advice provided in this article is general advice only and has been prepared without taking into account your objectives, financial situation, or needs.
This article was brought to you by CHU Underwriting Agencies
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