Question: The cost of homeowners insurance is skyrocketing. Many owners of strata lots are resorting to self-insurance. Is this a wise practice? What are the benefits? What happens when most owners do not pay maintenance on time and are often in arrears?
- beckfordducran@att.net.
Answer: Crude oil prices have risen by nearly 30 per cent over the last 12 months. I am still to hear that local motorists have parked their fuel-inefficient, mostly single occupant SUVs for JUTC buses in order to reduce their energy costs. Yet, some of the same persons, who leave air-conditioned strata lots in the so-called gated communities and spend most of their waking hours in climate-controlled buildings or vehicles, forego insurance on their houses. The non-insurance of strata complexes - often based on ignorance - seems to be on the increase. The practice is puzzling. Insurance premiums after all, represent a much smaller part of the expenses of running a household than energy costs. Why the difference in treatment?
The answer: most strata corporations lack effective management. They are not unlike government departments, public/private sector companies and other entities. Issues like increases in the cost of insurance are not the problem. The root cause of the difficulties facing some strata companies is the failure of management to develop and implement appropriate strategies to solve problems. As a result, the risks facing owners of strata lots are poorly managed. Properly-run strata corporations have effective programmes for managing risks. This is the general background to my responses to your questions.
IS IT PRUDENT TO SELF-INSURE CONDOS?
I do not know if it is wise to self-insure property which falls within the ambit of The Strata Titles Act, 1969. My reading of the law, which is supported by a written legal opinion of a well-respected attorney who specialises in insurance matters, suggests that lot owners in strata plans are required to "insure and keep insured the building to the replacement value ... against fire, earthquake and hurricane and other risks as may be prescribed, unless the proprietors by unanimous resolution otherwise determine ..." The law makes it clear that non-compliance with this provision is permitted in cases where the ALL the owners agree.
Information that I have suggests leaders of many strata entities operate as though the law which governs strata companies does not exist. When this happens self-insurance cannot be a prudent option - assuming that one is guided by what section 174 (1) of The Companies Act, 2004 says about persons who exercise powers and discharge duties:
"Every director and officer of a company ... shall - (b) exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances, including but not limited to the general knowledge, skill and experience of the director or officer."
Sub-section (3) goes on to say that "a director or officer shall be deemed to have acted with due care, diligence and skill ... where the director or officer reasonably relied in good faith on documents relating to the company's affairs, including financial statements, reports of experts or on information presented by other directors or, where appropriate, other officers and professionals ..." In summary, there is no short, simple answer to your first question.
The best advice that I can offer in response to your third question is that you obtain the services of a good attorney.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com.
