Is your strata committee protected?

It's not just strata buildings that should be insured.

Committees of body corporates, owners' corporations, and strata corporations almost universally understand and appreciate the need for strata insurance over their properties. Basic cover to meet the costs of repairs or replacement of assets, as well as public liability insurance for personal injury or property damage, are required by law under each state's strata laws.

Basic cover however, is just that... basic: leaving a lot of risk in other areas that can easily remain uninsured, and thus put the burden of costs on individuals. Fortunately, specialised strata insurers such as Flex, make it easy for strata corporations to identify potential risks and tailor their policies accordingly. Even failing to do so can leave committee members in a perilous position, but that doesn't need to be the case.

Strata committee obligations

In Australia, the law treats corporations as independent legal entities that can enter into contracts, hold bank accounts, sue and be sued. But the difference between a corporation and a human being, is that only humans can make actual decisions - which is why every company has a board or committee.

As with any organisation, the committee has an obligation to make decisions reasonably, logically and in the best interests of the organisation. And while decision-makers can enjoy some indemnity for the choices they make, if it can be shown that a decision was reckless or the committee was negligent in its procedure (even though the members thought they were doing the right thing at the time) claims can potentially be made against it for damages or rectification.

In strata corporations, especially large ones, individual lot owners can be a very diverse bunch of people, each with different ideas and interests. What's more, strata properties deal with many others who are not owners, including visitors and guests, contractors, neighbours, the general public and government entities - all with their own interests as well.

Strata committees, when making any decision must take into account the potential effects of a decision, and occasionally, a decision or action by a committee can adversely impact someone else (or at least be perceived to impact them). Even if the committee, or the entire strata corporation, believes a decision was sound, it can still end up in legal proceedings. And this is where the costs can really mount up, with expenses potentially being borne by committee members themselves.

Fortunately, it is possible for owners' corporations to take out committee members' liability insurance to cover the costs of legal defence where members made bona fide decisions, that turned out to be unexpectedly costly or detrimental. Even if a court decides that the committee's decision or actions were sound, the legal expenses can still be eye-wateringly high.

What about the compulsory volunteer cover?

In NSW, all relevant owners' corporations must take out 'volunteer worker' cover. The Act states that this must cover: "damages for which the owners' corporation could become liable because, without fee or reward or any expectation of fee or reward, a person acting on behalf of the owners' corporation does work in a building or on the common property in the strata scheme."

Under this wording, it could be argued that only physical work by a volunteer committee member would be covered, not the decisions they make.

Still not sure?

Ultimately, if you're under any doubt, your committee should look at the costs (and potential savings) of adding office bearer liability cover to your strata insurance policy, and have a chat with your insurer and/or strata manager.