What must be insured?
A body corporate must insure, for full replacement value, the common property and body corporate assets.
Building (and volumetric) format plan
Where the scheme is subdivided by way of a building (or volumetric) format plan, a body corporate must also insure, for full replacement value, each building in which a lot in the scheme is located.
Standard format plan
Where the scheme is subdivided by way of a standard format plan, a body corporate must also insure, for full replacement value, each building that has a common wall between two or more lots in the scheme.
Is an excess permitted?
Yes, provided the liability for an excess would not impose an unreasonable burden on the owners of individual lots, where the excess must be paid by them.
What is an unreasonable burden?
In Cianna Gardens  QBCCMCmr 553, the applicant lot owner argued that a water damage excess of $10,000 imposed an unreasonable burden.
The adjudicator found that it was a heavy, but not an unreasonable, burden in circumstances where the body corporate was unable to obtain insurance with a lower excess (due to the scheme’s claims’ history).
Likewise, in The Point Coolum Beach  QBCCMCmr 285, the adjudicator commented that a water damage excess of $20,000 was not an unreasonable burden where that was the only insurance that could be obtained.
However, had either of those bodies corporate been able to obtain insurance with a lower excess, the adjudicators may well have determined that those excesses were unreasonable.
Whereas, in Whitsunday Harbour Stage B  QBCCMCmr 413 (Whitsunday), the adjudicator held that a water damage excess of $1,500 was not unreasonable.
In Whitsunday, the adjudicator explained that:
“Decisions about an insurance excess need to balance the cost of premiums against the cost of the excess when claims are made and there may be some individual owners who would prefer to contribute towards a higher premium so the amount of the excess is smaller. However, there would be a range of different amounts that fall within what is appropriate for any particular building. There is no evidence to satisfy me that an insurance excess of $1,500 is contrary to the legislation. Evidence that this particular excess is causing hardship to one specific owner is not sufficient to conclude the excess creates an unreasonable burden on owners generally. Taking into consideration section 182(2) of the Accommodation Module, the excess applicable to an insurance policy is ultimately a decision of the body corporate based on the options provided by the insurance company.”
What should a committee do?
A committee should inform itself about what insurance policies are on offer and make a decision acting reasonably, having regard to the burden of an excess on owners generally.
Where the entry into an insurance policy is to be voted on at a general meeting, and polices with a higher and lower excess are available, the committee should consider submitting a motion with those alternatives.
If you would like to discuss the above issue, or body corporate issues more generally, please telephone Nicholsons Solicitors on (07) 3226 3944.