Insurance

The Buildings sum insured shown in your policy schedule is the maximum amount the insurers will pay for rebuilding in the event of a loss.

It should represent the total cost of re-building assuming a total loss, including damage to outbuildings, car parks etc, and should also have an allowance for debris removal costs and professional fees that will be incurred. Additionally, there should also be an allowance for inflation during the period of insurance and any period of rebuilding. As this inflation allowance is difficult to estimate for future years, we recommend you arrange cover on a ‘declared value basis’ (see next question).

Policy schedules often show two values on the buildings: one referred to as the declared value and one as the sum insured. The important difference between these two is how the policy protects you against inflation in rebuilding costs.

When you calculate the declared value, it is the same as calculating the sum insured except that you do not need to add anything for possible inflation which may occur during the policy period or during the time taken to repair/rebuild following a claim. The policy then makes an allowance (typically adding a maximum of 50%) for inflation during the year and, more importantly, during the rebuilding period, which, in the event of a serious loss, could be a number of years. The insurers will then pay the maximum of the declared value, plus the amount by which inflation has increased the declared value stated at the start of the policy period the added allowance protecting you from inflation, without you paying more premium.

Declared value is often referred to as ‘day-one value’. We always recommend you arrange cover on a ‘day-one declared value’ basis.

It is a requirement of any policy to insure for the full rebuilding cost (see the previous two questions). If you do not, insurers will apply a clause called the ‘condition of average’.

This means that if you have only insured for half the correct rebuilding cost then, in the event of a claim the insurers only have to pay half the claim.

In the event of a total loss, you would potentially find yourselves having to personally fund the difference to complete repairs.

In the event of a claim (particularly a large one) insurers will ask the loss adjuster investigating the claim to check if the declared value is adequate.

Failing to insure your building for the correct value can be disastrous.

If you under-insure the buildings, the insurers will reduce your claim in proportion to the under-insurance. For example, if you insure for 50% of the correct value, only 50% of your claim will be paid.

Whilst many policies make provision for cost increases over a period of time, if the base value is wrong this does not help much. So we recommend you get the buildings valued by a surveyor with experience of insurance valuation.

The valuation exercise should be repeated every three to five years, as although insurers may index-link the sum insured each year, this is based on national indices and the actual cost changes can vary on a regional basis over time. So over time, your declared value may vary from the true buildings valuation.

At each renewal the insurer will apply an increase to the declared value to reflect the annual percentage increase shown in the Building Cost Information Service (BCIS) Index. The index takes into account the annual increase in building costs therefore allowing the declared value to keep pace with actual costs. The index is issued by the Royal Institute of Chartered Surveyors (RICS).

Terrorism cover is not included in normal block insurance policies. If cover is required is has to be added to the policy for which the insurer will charge an additional premium. The level of premium will reflect the perceived risk.

Any person or company who owns or uses property has a legal duty to provide a safe environment for visitors and any other person legally on the premises eg. visitors, contractors, postman.

If you fail in this duty of care the Owners’ Association could be held legally liable for the injury resulting in huge costs and damages being awarded. Property owners’ liability will protect you against these costs.

It’s also worth noting that an injured party may choose to sue any owner or group of owners – not necessarily a committee member or the Owners’ Association. The arguments put forward in Court ( however ridiculous ) have to be answered by someone – so this insurance covers legal fees to protect all owners.

When you agree to act for a residential management company / owners’ association in a formal capacity as a director (or on an informal basis as a committee member), under company law you are treated no differently to a director of a major PLC. So if you, or your fellow directors / committee members, make an innocent error or fail to do something you should, you can be held personally liable for the financial consequences.

This insurance protects you financially as the insurers will defend you if possible, and if not, pay the legal costs and damages awarded.

The cost for this cover is relatively small and we always recommend this cover is arranged. We suggest you make it a condition of becoming a director that this cover is purchased.

The majority of claims made are water related and the source is not always apparent. To find and solve the cause of the loss can be a time-consuming and expensive process. It could involve dismantling walls and drilling holes in floors throughout a building.

‘Trace and Access’ covers the costs of finding the leak and repairing the damage made to access the source of the water leak.

Insurers will place a limitation on the ‘Trace and Access’ element payable on each claim.