Property Law and Sectional Title

 

 

Some insurance providers may offer options to cover the excess payable on body corporate insurance claims. Owners can explore these options for additional financial protection.

Yes, the body corporate's insurance typically covers damage to the fixed assets within your unit that resulted from a burst geyser. However, damage to movable contents would usually be covered by your personal contents insurance.

Generally, the owner's consent is required to lodge a claim for a burst geyser that serves their unit. While the body corporate manages the overall insurance policy, the claim directly affects the owner (excess payment, potential inconvenience).
 

Yes, trustees can negotiate with the insurer to increase the excess payable on geyser claims. This can lead to lower overall premiums for the body corporate, as it reduces the frequency and cost of claims paid out by the insurer. However, this means individual owners will pay more out-of-pocket when they have a geyser claim.   

Generally, the body corporate's insurance is not intended to cover repairs or replacements resulting from normal wear and tear or a lack of maintenance. These are the owner's responsibility. However, some insurance policies may have specific sections that cover certain maintenance-related issues, so it's essential to check the policy wording.

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Geyser Insurance and Body Corporates

Navigating Geyser Insurance in Sectional Title Schemes - A Guide for Owners and Trustees

Geysers are a significant factor in sectional title insurance, frequently cited as the cause of a substantial majority – around 70% – of all insurance claims. These claims encompass repairs, replacements, and damages resulting from leaking or burst geysers. This prevalence poses a considerable challenge for insurers, underwriting managers, and body corporate trustees striving to manage insurance premiums effectively. Understanding the intricacies of geyser insurance, maintenance responsibilities, and the claims process is crucial for both individual owners and the collective body corporate.

The Financial Impact of Geyser Claims

Insurers, like any business, aim to remain profitable. A common benchmark for sustainability is a claims ratio of around 60%, meaning that for every R100 received in premiums, no more than R60 should be paid out in claims, typically averaged over a three-year period.

Consider a hypothetical building with 30 apartments. If the body corporate pays approximately R2,000 per month (R24,000 annually) in premiums, and the average geyser replacement costs R6,000 (potentially rising to R10,000 or more with resultant water damage), just three such claims in a year (R30,000) would result in a 125% claims ratio (R30,000 in claims versus R24,000 in premium income). To return to a sustainable 60% claims ratio under such a trend, the insurer would likely need to double the premiums. This increase would directly translate to higher levy contributions for every owner, potentially adding R800 or more to each owner's annual levy.

Understanding "Burst" Geysers and the Role of Maintenance

The term "burst geyser" often evokes images of a sudden, forceful explosion. However, the reality is usually different. Geysers typically fail due to corrosion and wear and tear over time, a process significantly accelerated by a lack of maintenance.

Geysers are generally constructed from steel and lined with glazing to prevent water from contacting the steel and initiating rust. During transportation and installation, this glazing can chip. To counteract this, manufacturers install a "sacrificial anode," a manganese rod designed to corrode in place of the exposed steel, effectively protecting the geyser lining. This anode has a lifespan of approximately 12 to 18 months. If not replaced, the geyser's internal decay accelerates, often leading to malfunction and the need for replacement within about 36 months. This gradual deterioration, rather than a sudden burst, is often the cause of geyser failure, raising questions about whether such events are truly insurable incidents or a consequence of inadequate maintenance.

Historically, insurers have often paid these claims, attempting to factor the cost into premiums. If a plumber deems a geyser "burst," it can be difficult and costly (potentially an extra R2,000 for an assessor) to dispute.

Rules, Responsibilities, and Insurance Structures

The governance of geysers in sectional title schemes involves a division of responsibilities:

  • Body Corporate's Responsibility Prescribed Management Rule (PMR) 29 (and similar provisions in the Sectional Titles Schemes Management Act - STSMA) generally mandates that the body corporate must insure geysers to their full replacement value against risks like bursting, subject to negotiated excess amounts and premium rates.
  • Owner's Responsibility Conversely, PMR 68 (and PMR 31 of the STSMA Regulations) stipulates that the owner is responsible for the maintenance, repair, and, when necessary, replacement of the geyser serving their section, even if it's located on common property (e.g., in the roof or outside the unit).
  • Therefore, a clear distinction exists: the body corporate insures, and the owner maintains.

Insurance policies attempt to manage this high-risk area in various ways:

  • Sliding Scale Excess Older geysers may attract higher excess payments.
  • Fixed Fee Cover Some policies offer full geyser cover for a set monthly fee per geyser.
  • Maintenance Plans Certain insurers offer maintenance plans to proactively manage geysers and prevent unnecessary replacements.
  • Managing Premiums and Excesses
  • If trustees are concerned about claims for geysers failing due to age and lack of maintenance (rather than sudden insurable events) driving up premiums, they can negotiate higher excesses for geyser claims with their insurer. For example, increasing an excess from R1,000 to R4,000 could significantly improve the claims ratio and lead to lower overall premiums for the body corporate. This proactive approach by trustees can be seen as acting in the best financial interest of all owners by ensuring premiums remain reasonable and sustainable.

Who Pays the Geyser Excess?

PMR 23(2) of the STSMA Regulations (and similar provisions) generally states that the owner is responsible for paying the excess for a claim relating to a part of the building they are obliged to maintain. Since PMR 31 designates geyser maintenance as the owner's responsibility, the owner of the section served by the geyser is liable for the excess payment on any geyser repair or replacement claim.

However, there can be nuances. For instance, components that are part of the common property but sometimes covered by insurance (like a Pressure Relief Valve - PRV, which serves the geyser but may not be considered part of the geyser itself by legal interpretation) could potentially have their excess fall to the body corporate's account.

The Claims Process and What's Covered

Submitting a Claim:

When a geyser needs repair or replacement under insurance, the owner is typically entitled to use their preferred plumber, provided the work is done within the insurer's approved rates. The process generally involves:

  • Contacting a plumber (emergency numbers may be provided by managing agents).
  • The plumber completes the repair or replacement.
  • The owner forwards the plumber's invoice and a completed geyser claim form (often downloadable from the managing agent's website) to their Portfolio Manager or the trustees.
  • The managing agent or trustees submit the claim to the insurers.
  • Once the claim is settled, the excess portion is typically billed to the owner's levy account (or sometimes paid upfront by the owner to the plumber).

Information Required for a Claim:

  • A signed claim form.
  • The plumber’s invoice detailing parts used and itemised labour.
  • Details (make, model, serial numbers) of the old and new geysers.
  • Photographic evidence (before and after, and geyser tags).
  • A Certificate of Compliance (CoC) if required.
  • Detailed quotations or invoices for any resultant damages.

What is typically considered the "hot water installation"?

Sectional title experts often consider the installation to begin where cold water enters the geyser (inlet and drain cock) and end where hot water exits at the tap or spout. Insurers, however, define what their policy covers. This typically includes the geyser tank and its internal components but often excludes items like the sacrificial anode, elements, and pipes beyond one metre of the geyser. The isolator switch, circuit breaker, ripple relay, and PRV are also commonly excluded from standard cover but may be included at an additional premium. Access costs (e.g., opening ceilings or dismantling cupboards) might also be excluded by default but can sometimes be added to the cover.

The specific policy wording and schedule will always determine the extent of coverage, including limits and excesses, which can vary between schemes and change over time.

Resultant Damage:
If a burst geyser causes damage to the unit (e.g., ceilings, cupboards, flooring), owners can typically claim for these resultant damages. However, body corporate insurance usually only covers fixed assets within the unit. Damage to movable assets (furniture, personal belongings) needs to be claimed through the owner's personal contents insurance. To claim for resultant damage to fixed assets, owners usually need to obtain multiple (e.g., three) repair quotations and submit them promptly with the geyser claim. Delays in submitting claims can sometimes lead to repudiation.

The Path to Proactive Management:
The ideal scenario involves owners collectively arranging for regular, scheduled maintenance of all geysers in the complex by a qualified plumber or specialist service provider. This includes checking and replacing sacrificial anodes and inspecting valves. Such proactive maintenance significantly reduces the likelihood of premature geyser failure and helps control overall costs for everyone.

Current prescribed rules may not always facilitate body corporates taking charge of geyser maintenance, especially when geysers are individually owned but located in common areas. Legislative adjustments, with industry input, could provide more flexibility regarding who can manage geyser maintenance. This is particularly relevant for complexes where geysers are situated on common property, making centralized maintenance far more practical than individual owners coordinating numerous plumbers.

In the interim, trustees play a vital role. They should actively engage with their brokers or insurance advisors to scrutinize high claims ratios and explore the best insurance alternatives for all owners, even if this means implementing higher excesses for geyser claims to maintain affordable overall premiums.

Key Takeaways for Owners

  • You are responsible for the maintenance, repair, and replacement of the geyser serving your unit, even if it's on common property.
  • The body corporate's insurance typically covers burst geysers, but you are liable for the excess on any claim related to your geyser.
  • You can claim for resultant damage to fixed assets in your unit caused by a burst geyser.
  • Damage to movable assets requires a claim against your personal contents insurance.
  • You generally have the right to use your own plumber, provided their rates are within insurance guidelines.
  • Act promptly when making a claim, as policies have time limits.
  • Understand your body corporate's specific insurance policy details, including limits and excesses for geysers.
  • By fostering a collaborative approach to maintenance and ensuring clarity on responsibilities and insurance provisions, body corporates and owners can better navigate the challenges posed by geyser-related issues, ultimately working towards more stable and predictable insurance costs for the community.

Conclusion - Navigating Sectional Title Insurance with Confidence

Understanding the intricacies of insurance responsibilities within sectional title schemes is paramount for all owners. At VDM Attorneys, our commitment is to ensure that our clients are well-informed and compliant with these requirements. By providing clear guidance on insurance excess payments, additional coverage options, and geyser maintenance responsibilities, we aim to foster a smooth and well-managed community living experience for everyone. Whether you have questions about your insurance obligations or need assistance with a claim, our team is here to support you every step of the way. Contact us for a consultation.