Two dunce officials at the control
Question: I bought an apartment in a strata complex with a bank loan. As a result, I had to pay for insurance to protect the bank's interest. The strata company also insured the complex with another insurer. A fire occurred at the premises and damaged my unit. Claims were submitted, but the two insurers are giving me the run around. Since they accepted my money, shouldn't the insurers pay the claim?
- A.S., Kingston 8
Answer: The persons who are handling your claim are dunces! That term, which was used quite often while I was attending primary school, is no longer in common usage, that is, if one relies solely on the thesaurus that is embedded in the latest version of Microsoft Word.
That word, according to The Shorter Oxford English Dictionary, captures my feelings about the claims officials. They "show no capacity for learning". Their ignorance is the root cause of your problem.
Mortgaged condos need double insurance. I wrote an article on this subject 30 months ago. No one from the very influential banking and insurance sectors challenged that argument. Presumably, that was a valid conclusion. None of the changes that were made to the Strata Titles Act in 2009 will affect that opinion.
Also, if the two officials had typed the phrase "double insurance and condos Jamaica" in the Google search engine, my article would have appeared on their desktops in 0.12 seconds. The two claims would have been paid if they had read what I wrote.
Since neither you nor the insurers' representatives read the 2008 article, I will use it as a point of reference to answer your question. The local 'bible' on strata properties is The Registration (Strata Titles) Act.
As the owner of a strata lot, it is important that you familiarise yourself with the act and its amendments. Insurance for buildings in strata plans is compulsory. Owners in your complex would be in breach of the law if the buildings were not insured - unless of course, a majority of owners had decided not to buy insurance.
Compulsory insurance provides money to fund repairs in the event of loss - partial or total - for all of the owners. This is the reasoning behind the law.
The insurance that is mandated by law is intended to preserve the investment of all the owners.
The changes that were made to the act in 2009 were to: (a) establish a Commission of Strata Corporation and specify its role and functions in order to resolve particular problems associated with these kinds of developments; (b) establish a time frame within which new strata should be registered; (c) stipulate penalties for non-payment of annual fees; and (d) provide for the recovery of fees in the courts.
DOUBLE INSURANCE IS OK
The interests of mortgagees, banks, building societies and other financial bodies in strata lots are treated in the act as separate from those of the owners or mortgagors.
Lenders and borrowers have separate insurable interest. That phrase means an expectation of monetary loss. Since the expectation of loss for each party is unconnected to that of the other party, both interests are insurable.
A mortgagee's or lender's interest is limited. It is the unpaid loan balance on the property that was pledged as security. That amount varies over time.
In the case of the mortgagor/borrower, the amount of his/her interest also changes over time. When the mortgage property is damaged, the borrower's main concern is to get money to fund the repairs. He/she has possession of the property and the "interest clock" is always ticking.
Borrowers' and lenders' interests are insured under separate policies. In the case of a condo, the owner's or mortgagor's interest is protected under the contract of insurance that is required by law.
Our lawmakers demand separate policies for borrowers and lenders. Subsection (5) of Section 2 of the law says: "A policy of insurance authorised by this section and in respect of the building shall not be liable to be brought into contribution with any other policy of insurance, save another policy authorised by this section in respect of the same building."
In short, double insurance is okay when the interests are separate. By the same token, it is not allowed when the interests are similar.
Regulation 23 of the act (http://www.moj.gov.jm/laws/subsidiary/Registration) recognises that units in condos or stratas may have mortgages. These issues are dealt with in Regulation 24 (1) to (4). Sub- clause (1) allows "double insurance" where there is a mortgage. The sum insured should be "for a sum equal to the amount (of the loan) secured".
In the event of a loss, "the insurer shall be liable to pay" under Sub-clause (2), the lesser of "(a) the value stated in the policy (the sum insured); or (b) the amount of the loss; or (c) the amount, sufficient at the date of the loss, to discharge the mortgage(s)."
The insurers are, therefore, legally liable to pay the strata corporation and the bank. Tell the bank and the executive committee of your strata corporation to contact the insurance companies and instruct them to pay the claims without further delay.
Cedric E. Stephens provides independent information and free advice about the management of risks and email@example.comSMS/text message to 812-7233