Buying And Living in a Multi-Unit Development Property in Ireland
16. Management Company Insurance
16.1 Introduction
There are many different types of insurance policies which you can decide to avail of.
Should you purchase insurance, make sure that you understand the terms and conditions of the insurance policy you intend to buy.
Our consumer financial information website www.itsyourmoney.ie provides independent information in plain English on the main types of insurance available.
16.2 Is my unit insured?
It is your decision to insure your own contents and personal items.
Contents are generally deemed to be all property, personal effects, valuables, and clothing in your home. It is important to remember that most insurance policies are on a replacement basis.
This means you need to value your belongings based on what they would cost you if you had to replace them as new tomorrow.
The best way of valuing your contents is to carry out a regular inventory of all your personal items. In general this type of policy does not cover maintenance as it is specifically designed to cover sudden and unforeseen losses which maintenance is not.
In addition, it does not cover faulty or defective workmanship carried out by tradespersons. As with all forms of insurance it is important that you do not underestimate or overestimate the value of the items you wish to insure.
16.3 Is my multi-unit development insured?
Before you buy, your solicitor should contact the management company or managing agent and ask them to include your details and those of your financial institution on the block insurance policy as per your mortgage, and issue an indemnity/interested party letter.
You should also look to obtain written confirmation from the management company or managing agent, that the block insurance policy has been renewed.
As insurance of the development is important to all owners it should be discussed at the company's AGM every year.
16.4 Mixed developments and insurance
In developments that have a mix of houses, duplexes and apartments, directors will need to check the lease to see if the management company is responsible for insuring all the buildings, as owners of houses may be responsible for arranging their own buildings insurance cover.
16.5 Who is responsible for insuring the multi-unit development?
The management company/directors are responsible for arranging insurance on the multi-unit development. Insurance premiums can be costly and directors need to be well informed before making any decisions regarding the purchase of insurance.
Insurance companies rate risks differently and directors should try and get a number of alternative quotations.
It is recommended that directors seek independent professional advice to assess what type of insurance is required and ensure that adequate insurance has been obtained.
Directors may decide to contact insurance companies directly to seek advice and quotes or consider employing an insurance broker whose job is to find the most competitive (in terms of both price and cover) insurance policies on their behalf.
If you use a broker, ensure that the broker explains each of the quotes obtained in terms of costs, risks, cover and benefits.
You should also ask your broker to explain the reasons why they may be recommending a particular product over others.
The broker should be asked to consider the leases under which the units are held to work out what sorts of risks the company needs to be insured against.
The directors should review all insurance needs on an annual basis in advance of policy renewal dates and report on any developments in this regard at the AGM.
Some of the typical insurance policies taken out by management companies are:
- Buildings insurance including Alternative Accommodation and Loss of Rent;
- Common area contents insurance;
- Public liability insurance;
- Employers liability insurance;
- Directors and Officers liability (Management liability) insurance.
16.6 What is buildings insurance?
Building/Block insurance protects the development against damage caused by unforeseen risks such as fire, flood, burst pipes, malicious damage, theft, and subsidence.
When taking out building insurance it is important to note that the sum insured is not the market value of the property.
The development should be insured for the cost of rebuilding the property from scratch, including demolition and clearing the site.
This cost is known as the reinstatement value. In deciding what insurance will be required and how much the insurance should cover the directors may need to liaise with property managing agents, chartered surveyors and insurance providers.
If it is a new development the developer may be able to advise as to what the construction costs of the development were.
For older developments it is best practice to have an independent chartered surveyor or quantity surveyor carry out a rebuilding cost valuation on a regular basis.
This will provide an estimate of what the total rebuilding costs are likely to be and these costs represent the sum for which the building should be insured.
It is possible to calculate an approximate estimate of your property's reinstatement value by using the Society of Chartered Surveyors guide to house rebuilding insurance. This is available at www.scs.ie.
However, bearing in mind the complex construction of some developments a professional opinion is likely to be required.
When taking out insurance cover it is important not to under or over estimate the value of what is being insured. If the directors underinsure the insurance, the company might not pay out enough to cover the cost of repairing or rebuilding.
For example, where a building is underinsured by 20% the resulting claim is reduced by 20%.
If on the other hand, the building is insured for too much, the premium will be higher than necessary and the management company will not get any extra benefit if it has to claim.
16.7 What is public liability insurance?
Public liability insurance protects the management company against the financial risk of being found legally liable to a third party for death or personal injury, loss or damage of property or 'pure economic' loss resulting from negligence or lack of due care on the management company's behalf.
Where such a policy is in place anyone who is invited, trespasses or works on the development is covered in the event of accident.
Any defects in the development such as faulty paving or broken fittings should be repaired to prevent any potential negligence on behalf of the development, as a claim can only be submitted where it can be shown that there was negligence on the part of the development.
16.8 What is employers liability insurance?
Employers liability insurance covers a company's legal liability for accidental bodily injury to employees or disease contracted by them arising in the course of their employment by the management company.
16.9 What is directors and officers liability insurance?
Directors and officers liability insurance insures the directors and officers against claims which could be made against them in terms of not fulfilling their duties as directors.
The directors and officers of a company may be held personally liable for failures on their behalf to comply with legal duties, misleading statements, mismanagement, omissions or negligence.
The insurance policy is designed to protect the personal wealth of the directors and officers in such circumstances.
This type of insurance covers officers for their potential exposure to claims brought against them for any actual or alleged breach of duty, breach of trust, neglect, error, misstatement, omission, breach of warranty of authority, libel/slander or any other act committed by the committee members in the course of carrying out their management company activities.
The policy might also extend to cover:
- All past and present directors & officers of the management company;
- Legal costs incurred in defending claims;
- Advancement of defence costs;
- Innocent directors and officers of the management company should one of their colleagues prove dishonest or fail to disclose material circumstances when proposing for insurance cover;
- Employment practices liability.
16.10 What is professional indemnity insurance?
Professional indemnity insurance is designed to protect firms and their employees against claims which may arise as a result of their professional conduct, neglect, error or omission.
If the service provider is a member of a professional or trade association, the association may require them to have professional indemnity insurance.
However, the management company should still ask them to verify that they have adequate cover.
16.11 What is public and employers liability insurance?
Where contractors are employed to carry out work in the development, they should always have their own public and employers liability insurance in force and management companies, managing agents or otherwise need to be aware that this is essential and to ask for proof of same.
Ensuring that contractors have their own insurance in force before entering the development should reduce the likelihood of the management company being at risk of a claim for injury or otherwise arising out of the contactors negligence.
16.12 How can risk/insurance costs be minimised?
The premium cost paid for insurances is determined primarily by:
- The management company's damage and liability claims history;
- The safety standards the management company's has in place.
Claims experience is the list of damage and liability claims that have been recorded against the insurance policy for the development over a five-year period.
It is important that the management company is proactive in its approach to handling damage and liability claims and minimising risk.
Some examples of this include:
- Having an up to date Health and Safety statement in place and reviewed at regular intervals;
- Carrying out a Health and Safety survey at regular intervals to highlight and minimise potential risks;
- Requesting that the insurance company carry out a risk management survey to assist in putting together a loss prevention programme;
- Preparing a preventative maintenance programme to maintain the property and keep it in good repair at all times;
- Notifying your insurance company immediately following any potential damage or liability claim.
The management company should examine the common areas on a regular basis to ensure that they are as safe as possible.
The management company should ask the insurance company what standards of safety, if any, they recognise, and whether discounts are available for achieving those standards.
If you employ an insurance broker, they should also be able to advise you on how to reduce your risk profile.
16.13 What should be done in the event of a claim?
Depending on the type of incident, you should take any emergency or urgent action which may be necessary to protect the unit or multi-unit development from further damage or loss.
You should immediately contact your insurance provider and management company and liaise with them accordingly.
As regards the insurance company, you should provide details of the claim and request a claim form.
Depending on the type of claim, your insurer or broker will give you advice on what to do next.