Legal disputes in Strata – Part B

10 December 2021

In Part B of the two-part series, Mahoneys Partner Todd Garsden and Tyrone Shandiman (Strata Insurance Solutions) continue to discuss legal disputes – specifically how legal disputes can impact on strata insurance and how to minimise the risk.

Q: What impact can claims, related to legal disputes, have on insurance?

Tyrone: Legal defence expense claims are not looked at favourably by insurers when they consider claims history in offering quotes for insurance.

Where a dispute has reached the stage of an insurance claim, it can be a signal to the insurer that the prospect of a future claim is more likely.  A claim is a demonstration to the insurer that parties have not been able to reach a resolution to a dispute, without the need for litigation. This can sometimes be because parties in the body corporate take a more litigious approach to dealing with disputes or are simply unable or unwilling to compromise to reach an outcome.

Some insurers will want to know if the party involved in the dispute is still involved in the body corporate when offering quotes for insurance policies (for example if the claimant is a lot owner, do they still own in the body corporate).

Legal defence expenses claims can come at a cost to the body corporate, whether it be in the form of premium loadings for up to three to five years after the claim, or simply a reduction in competition due to some insurers declining to offer quotes.

It is important to consider the implications a legal claim can have on your insurance policy.

Our approach to lodging legal defence expenses claims is to encourage clients to make all attempts to reasonably avoid a claim and use your insurance policy as a last resort in the event the dispute cannot be resolved.

Q: What can a body corporate do to minimise the chance of a legal claim or limit claiming on their strata insurance?

Todd: As foreshadowed above, a proactive approach to minimising disputes will have a tangible effect on the chances of being drawn into the need to make an insurance claim. There is a particular body corporate at Tennyson which comes to mind that is extremely well prepared and organised such that in the event a dispute did arise, they are well placed to deal with it.

That said, ultimately there is no absolute failsafe, but there are some measures that can be undertaken to give a body corporate a fighting chance.

The best measure is to engage a professional body corporate manager. The value of a quality body corporate manager cannot be understated.

Other measures that can assist include:

  1.  Engaging various consultants from time to time, as recommended by your body corporate manager. For example, these can extend to health and safety inspections, fire audits or quantity surveyors;
  2.  Become familiar with the scheme documents including the CMS, survey plans and other documents that may affect a scheme such as a BMS, easement, etc.
  3.  Ensure your by-laws are updated so they are enforceable – if there is an issue that needs to be addressed, it takes too long to then take action to change the by-laws. The by-laws should be prepared in advance so that enforcement action can be taken when required.
  4.  Take early intervention with levy recovery, management rights disputes and other issues that arise. Ordinarily it is much easier to swiftly cut off an issue at the pass rather than take the risk it goes away by itself. Usually it will snowball and become more difficult to manage as time passes.

The best example of using these methods is building defects. Often a body corporate will only consider taking action against the builder towards the end of the limitation period. This is dangerous as what is usually the case is that the builder no longer exists, you do not have the evidence available in the period of time left to take any meaningful action, or you have run out of time. If a body corporate engaged a defect inspection consultant early (as legislation now required) and took early action these risks are significantly mitigated.

If you missed Part A – where Todd and Tyrone discuss what legal disputes can arise in bodies corporate and how strata insurance responds – you can access this here

Mahoneys is recognised as one of Australia’s leading body corporate law firms and regularly act for bodies corporate on legal disputes. Feel free to contact us if you have a body corporate dispute you need assistance with.