Beach Meet [2018] QBCCMCmr 39 (23 January 2018)

 Beach Meet  [2018] QBCCMCmr 39 (23 January 2018)

Last Updated: 29 January 2018

ADJUDICATOR’S ORDER

Office of the Commissioner

for Body Corporate and Community Management

CITATION:	Beach Meet  [2018] QBCCMCmr 39
PARTIES:	Margaretha (Marga) Van Zanten (applicant) Joan Robb Pty Ltd (respondent)
SCHEME:	Beach Meet  CTS 28888
JURISDICTION:	Sections 227(1)(a) and 229(3)(a) of the Body Corporate and Community Management Act 1997 (Qld) (Act), applying the Act and the Body Corporate and Community Management (Small Scheme Module) Regulation 2008 (Small Scheme Module).
APPLICATION NO:	1073-2017
DECISION DATE:	23 January 2018
DECISION OF:	M A Schmidt, Adjudicator
CATCHWORDS:	Building Insurance – responsibility for brokerage fees, increased premium and increased excess where different policy is required because one lot is used for short-term letting. Small Schemes Module, ss 113, 116,118, 121.

ORDERS MADE:

REASONS FOR DECISION

Introduction

[1] This application is brought by the owner of Lot 2, Marga Van Zanten, against the owner of Lot 1, Joan Robb Pty Ltd, regarding building insurance for the scheme.

[2] The applicant states in her grounds that as of 1 July 2017, Lot 1 has been used for short term letting (through AirBnB). She states that this voids their current ‘residential’ insurance policy and, in the case of an insurable event occurring, the current insurance could reject a claim.

[3] The applicant states that she has requested that Lot 1 secure adequate insurance before she continues renting out her unit through AirBnB. She is not seeking an order to stop AirBnB all together; she knows it is not within the Act to prohibit this. However, she does not wish to be made responsible and bear extra costs to enable her neighbour to run a business. A body corporate meeting to discuss new insurance and take a vote never took place. Without any prior contact to discuss, Ms Robb presented the applicant with an invoice for a commercial strata policy six weeks after she started short term letting. The applicant received an invoice from the insurance broker for a new insurance policy, with a starting date backdated to 4 August 2017. The applicant notes the following comparison between the current and proposed new insurance policies:

[4] The applicant states that she expressed her concern and unwillingness to co-sign such a policy, based on the fact that there is no flood cover and the excess is extremely high. She sees this as an unreasonable burden to her. Potential cyclone damage would cost an additional $19,900 in excess. In the event of flooding, the building is totally uninsured. The applicant continues that she simply could not afford repairs to the property and further damage could occur when repairs are not carried out promptly.

[5] As the property is in far North Queensland and across the road from the beach, the applicant states that cyclones and flooding are major concerns. And it is for those events that insurance cover is most required.

[6] The applicant further states that selling the property with an insurance policy such as that proposed will be more difficult.

[7] The applicant states that Ms Robb has agreed to pay the extra premium for the initial period covered by the new policy. There is also an invoice for $780.00 in brokerage fees, for which Ms Robb does not wish to take responsibility.

[8] The applicant concludes that she is being pressured into giving up suitable and affordable insurance (for the current use of the premises) and replacing it with commercial building insurance, without flood cover and with extremely inflated excesses (as well as having to pay 50% of the brokerage fees) to enable the investor owner of Lot 1 to run a commercial enterprise and earn an income. She states that the benefits of a commercial policy are solely for the benefit of Lot 1, with nothing but disadvantages for the applicant. This does not seem fair and equitable to the applicant.

[9] With Lot 1 now used for short term letting, obtaining suitable and affordable insurance has become close to impossible. The applicant has spent a considerable amount of money (so far $550 on legal advice) and time, trying to obtain other quotes. Thus far, she states that commercial strata companies have not been wanting to quote, due to the location of the premises.

[10] The applicant states that she realises the Act states that the premises must be insured; the Act cannot stop someone from running an AirBnB, and the Act cannot impose more excess on one owner. However, one person should not be penalised for the actions of another.

[11] The applicant provided a copy of the current insurance policy, described as “Top Strata Residential Insurance” for a period ending on 27 February 2018 which includes cover for the building (insured for $696,000), legal liability ($10,000,000), and optional flood cover, for a premium of $3,690.80. The policy has a basic excess of $100, a water damage excess (caused by leaking or burst pipes) of $200 and an additional excess of $250. Claims for loss or damage occurring to a lot or unit when it is not occupied are stated to be subject to an additional excess of $2,000. The policy is expressly stated to be based on no use for any business activity, other than an administration office.

[12] Also provided was a copy of the insurance initiated by Ms Robb for the period 4 August 2017 to 4 August 2018 at a premium of $4,555. Under that policy, the building is insured for $696,000, and public liability ($20,000,000) is covered. Additional cover is provided for rent and extra costs ($104,400), theft of funds ($100,000) and personal accident ($200,000/$2,000). The standard excess payable on the happening of an insurable event is $1,000 for each and every claim, $20,000 in the event of a cyclone, $5,000 in the event of burst/leaky pipes and resulting water damage claims, $3,500 in the event of a claim where more than 40% of the units are unoccupied, $20,000 in the event of earthquake and $500 for liability.

[13] The applicant seeks an order that the owner of Lot 1 obtain adequate insurance that is fair and equitable to both parties, before AirBnB operations from Lot 1 can continue. The applicant believes the insurance policy should not be an unnecessary burden to one party. If a new policy is accepted, the applicant states the following should be included:

• Flood cover (as the current insurance policy does)
• Excess for cyclone and other events should remain low
• Joan Robb Pty Ltd will be responsible for the extra premium this year and the following years;
• Joan Robb Pty Ltd pays brokerage fees
• It should not be at any extra cost to the applicant.

Overview

The lead up to the dispute

[14] “ Beach Meet ” is a two lot residential scheme that was established in December 2000 by registration of survey plan 122871 (a building format plan of subdivision). The scheme is regulated by the Small Schemes Module. The community management statement records that both lots have equal contribution and interest schedule lot entitlements. Both lots are contained within the one building.

Procedure and jurisdiction

[15] This is a dispute about an alleged contravention of the legislation that falls within the dispute resolution provisions of the Act.

[16] The Commissioner invited the owner of Lot 1 to make a written submission regarding this application and the owner of Lot 1 did so. The applicant inspected that submission and provided a written reply. Further information was requested from the applicant.

[17] I have decided the application based on the written material provided. The most relevant material is referred to below.

Analysis

Submission by Lot 1 owner

[18] The owner of Lot 1 submits that Lot 1 is currently being used for AirBnB and for her own personal use.

[19] She states that if the applicant can find a new policy with the appropriate cover, that is fine by her, however, she has tried on numerous occasions to find an insurance company/broker to provide a quote (let alone with flood cover) and the ONLY one was their current insurance broker, Goldsworthy Investments Pty Ltd. When speaking with other insurance companies, their reasons for not providing a quote were the age of the building, the location of the building (being in far North Queensland) and the claims history.

[20] At this stage, the only adequate cover offered has a higher premium and excesses.

[21] The owner of Lot 1 is prepared to pay the increased part of the premium, however she is not accepting the responsibility with regard to the excesses when the insurance company clearly based their quote on the age of the building, its location (being in far North Queensland) and the claims history. She states that she has never made a claim on the body corporate insurance, but the applicant has.

[22] The owner of Lot 1 agrees to pay half the brokerage fees.

[23] The new premium is not costing the applicant any more; the owner of Lot 1 is prepared to pay the increase in premium.

Applicant’s response to submission

[24] The applicant responded to the submission to the following effect:

• The insurance providers consider renting out the entire unit (and not just a room) as an increased risk and hence the increase in premium and excess. The fact that Ms Robb resides in her unit a few days a year has no bearing on the risk assessment. Unit 1 is bookable on AirBnB as an entire house for the entire year.
• At the time the new policy was sent to the applicant with a request for payment, Ms Robb had only obtained one quote and the applicant was not given the opportunity to discuss the matter. Although the applicant was overseas from June to December 2017, Ms Robb had all of her contact details and she could easily have been contacted.
• Ms Robb argues the excess has gone up due to claims history. The applicant would like to argue that the excess only goes up to extreme amounts when the unit is used for AirBnB. The recent quote from AAMI has a $200 excess on water damage and they are aware a claim was made in 2015^[1]. The current insurer extended their insurance for the year 2016 and 2017 and has offered to continue to do so for 2018, providing that Lot 1 is no longer used for AirBnB.
• She feels pressured to take on an insurance policy for which she has no use and which has nothing but disadvantages for her. She has no need for a new policy and does not wish to pay brokerage fees for something she does not need and is totally opposed to.
• Ms Robb has accepted that she needs to pay the increased premium as per the legislation. The applicant is objecting to the excess charges, not the premium. In the event that a claim needs to be made, her costs would be extreme.
• Insurance companies are happy to insure the scheme for residential use only. Cyclone and flood cover are included with a low excess.
• Running an AirBnB from Lot 1 forces them to take out a commercial insurance policy with extremely high excesses and without flood cover, however includes cover that would only benefit Lot 1 (eg loss of rent).

Findings of fact

[25] From the material submitted, I can discern the following facts:

• The body corporate had insurance cover described as “Top Strata Residential Insurance” arranged through Resilium Insurance Broking. The insurer was AAI Limited, trading as GIO. The policy of insurance covered the period 27 February 2017 to 27 February 2018 for a premium of $3,690.80^[2].
• In late June 2017, the applicant contacted Goldsworthy Investments Pty Ltd (Goldsworthy – who state they act as authorised representatives for Resilium Insurance Broking) to notify them that Lot 1 was going to be used as an AirBnB.
• Goldsworthy advised the applicant that the current insurance policy would not be suitable and that alternate coverage would need to be arranged for the building and public liability.
• By letter dated 10 August 2017, Goldsworthy recommended a Commercial Strata Policy with Axis Underwriting Services Pty Ltd. The policy covered the period 4 August 2017 to 4 August 2018, with a premium payable of $4,555.
• Goldsworthy received instructions from the owner of Lot 1 to proceed with the cover.
• The applicant notified Goldsworthy that she did not approve of the new policy. In an email dated 10 August 2017, Peter Abrahamse of Goldsworthy states that they were unable to continue to hold the current cover with the current underwriter and proceeded with the new cover in the applicant’s absence. Further, Goldsworthy advised that the costs of the coverage would have to be resolved between the two owners.
• The applicant has made genuine, exhaustive attempts to obtain alternative quotes, without any success. She provides evidence of contact with GIA Insurance Brokers (who state that they were unable to obtain a quote from any of the insurance companies that they deal with), Whitbread Insurance Brokers (who state they were unable to obtain quotes), EBM (who state that the insurer declined to quote due to the claims history), Ceneta (would only cover contents and public liability, not the building), Strata Community Insurance (who state they are unable to quote based on the year the scheme was built in the North Queensland location, CommInsure (who state they don’t offer strata title cover) and CHU (who decline to quote due to the location of the scheme).
• The applicant provides evidence that Resilium are willing to re-insure the scheme, on the same basis as before (ie no short-term letting in either lot). A quote from AAMI was also provided, offering residential strata insurance (ie no short-term letting) with the building insured for $650,000 and $20 million legal liability for a premium of $2,144.74 with flood and cyclone cover included and a $500 excess on all claims. Resilium is not prepared to offer insurance cover in the event that one of the lots is made available for short-term letting. Axis Underwriting Services Pty Ltd are providing commercial strata insurance for a premium of $4,555 with no flood cover and an excess of $20,000 in the event of a cyclone.

Insurance required

[26] As a building format plan of subdivision, the body corporate for  Beach Meet  is required to insure each building which contains a lot. In this case, both lots are contained within the one building. The building insurance which a body corporate takes out must cover damage to the building and other costs to reinstate or replace the insured buildings (e.g. professional fees and costs for removing debris). Damage includes earthquake, explosion, fire, lightning, storm, tempest and water damage; glass breakage; and damage from impact, malicious act and riot. Under the insurance policy cover, allowance must be made for the property to be returned to new condition.^[3]

[27] The body corporate can take out extra building insurance for things like floods. A motion to do this would have to be passed by ordinary resolution at a general meeting.

• [28] The body corporate must maintain public risk insurance of the common property and relevant assets. The insurance must provide coverage for amounts the body corporate becomes liable to pay for compensation for death, illness and bodily injury; and damage to property to the extent of at least $10 million for a single event; and at least $10 million in a single period of insurance.^[4]
• [29] The insurance that the body corporate previously held, obtained through Resilium, appears to have met the legislative requirements, but is no longer an option with Lot 1 being used for short-term letting. The new insurance obtained by Goldsworthy appears to meet the legislative requirements, now that Lot 1 is being used for short-term letting.
• [30] The applicant seeks an order that alternative insurance cover be obtained, that includes flood cover. The fact is that exhaustive attempts have been made to secure alternative insurance. There is no evidence that flood cover is able to be obtained for the scheme in the presently existing circumstances, with Lot 1 being used for short-term letting. It would not be just and equitable to make an order that cannot be complied with. The fact is, it is not a legislative requirement that flood cover be obtained and in any event, flood cover is not available for the scheme at the present time in the present circumstances.

Premium

[31] Each owner must pay part of the costs for the required insurance (i.e. the premium). Under a building format plan of subdivision each owner’s share of the insurance premium is based on the interest schedule lot entitlements. The two lots have equal contribution and interest schedule lot entitlements at  Beach Meet .^[5]

[32] In some cases, the body corporate can change the amount an owner pays towards the insurance premium. The body corporate can do this if:

• one lot has better fittings and fixtures than other lots and that affects the premium;
• improvements have been made to the common property which benefit one lot and that affects the premium;
• what is done on the lot increases the total risk covered by the insurance policy (e.g. you must pay more if you store flammable chemicals for your business, and the insurance premium is higher because there is a greater fire risk).^[6]

[33] In this case, the fact that Lot 1 is now used for short-term letting, (when it was not previously) has, from the insurer’s perspective, increased the risk they cover, resulting in refusal to continue to provide cover by the current insurer. Alternative insurance that meets the legislative requirements has been obtained, but only at an increased premium.

[34] The applicant has demonstrated that alternative insurance was only required because Lot 1 was made available for short-term letting. As such, I consider that by virtue of section 116(2) of the Small Schemes Module, the owner of Lot 1 is solely responsible for the increased premium payable for the current period of insurance. Both parties agree and no order is sought in relation to this. However, the applicant seeks an order that the owner of Lot 1 be responsible for any extra premium in following years as well. I am not prepared to make such an order. It is impossible to know, at this point in time, what the circumstances are that will affect the type of cover able to be obtained and the premium payable for it, in future years. Whether or not either lot owner should be responsible for a greater or lesser share than half of the applicable insurance premium for any particular future period is a question that must be determined on the facts that exist at the relevant time. I note that the role of an adjudicator is to resolve current disputes. An adjudicator cannot make orders about hypothetical future contraventions of the body corporate legislation.

Excess

[35] The alternative insurance obtained by the body corporate came not only with an increased premium, but higher excesses. Section 118 of the Small Schemes Module makes provision for excesses. The body corporate can decide to take out an insurance policy where an excess has to be paid on an insurance claim. The excess must not create an “unreasonable burden” on the owners of individual lots.

[36] The applicant seeks an order that alternative insurance be obtained with low excesses, similar to the pre-existing policy. However, the applicant has not been able to demonstrate that alternative cover is able to be provided by any other insurer (let alone for lower excesses) now that Lot 1 is being used for short-term letting.

[37] As previously stated, the fact is that exhaustive attempts have been made to secure alternative insurance. There is no evidence that alternative cover with lower excesses is able to be obtained for the scheme in the presently existing circumstances, with Lot 1 being used for short-term letting. It would not be just and equitable to make an order that cannot be complied with. The responsibility for payment of any applicable excess is a separate matter.

[38] Who pays the excess on an insurance claim depends on a number of things. As a guide, section 118 of the Small Schemes Module provides that if the event affects:

• only 1 lot—the owner should pay the excess unless the body corporate decides that it is unreasonable for them to do so
• 2 or more lots—the body corporate should pay the excess unless the body corporate decides it is reasonable for the excess to be paid by 1 or more of the affected lots
• 1 or more lots and the common property—the body corporate should pay the excess unless the body corporate decides it is reasonable for the excess to be paid by 1 or more of the affected lots.

[39] At this point in time, however, there has been no claim on the body corporate’s new insurance policy and there can therefore be no dispute in relation to the matter of responsibility for any excess payable in the event of a claim. Responsibility for payment of any applicable excess would be a matter to be determined in the circumstances in the event that a claim was made, with the guidance provided by section 118.

Brokerage fees

[40] The applicant has demonstrated that insurance cover that met the legislative requirements was in place for the period 27 February 2017 to 27 February 2018. The applicant has further demonstrated that $780 in brokerage fees were incurred in obtaining alternative insurance cover that was only necessary because of the change in use of Lot 1. The applicant did not consent to the change in insurance policy and the new insurance policy was taken out on instructions from Ms Robb acting alone. In these circumstances, although the legislation does not make provision for the responsibility for payment of brokerage fees, I consider it just and equitable that Ms Robb should be solely responsible for the brokerage fees incurred. I will make an order to this effect.

Conclusion

[41] By definition, a community titles scheme is a subdivision of land into two or more lots and common property.^[7] Every owner of a lot is automatically a member of a body corporate.^[8] Amongst other things, a body corporate is required to:

• Establish and keep an administrative fund and a sinking fund;^[9]
• Maintain an account kept solely in the name of the body corporate at a financial institution;^[10]
• Keep proper accounting records and prepare for each financial year a statement of accounts showing the income and spending (or receipts and payments) of the body corporate for the financial year;^[11]
• Maintain common property in good condition;^[12]
• Insure, to full replacement value, the common property and body corporate assets;^[13] and
• Maintain public risk insurance of the common property and relevant assets^[14].

[42] It does not appear that  Beach Meet  is functioning in accordance with its legislative responsibilities. The applicant states that each lot owner contributes equally to the expenses of the body corporate and that there is no administrative or sinking fund. It does not appear that any meetings are held.

[43] In the circumstances, a general meeting of the body corporate needs to be held to establish the affairs of the body corporate and allow it to thereafter proceed on a proper legal basis. This will also assist in arranging insurance in accordance with the legislation, for subsequent years.

[44] In the meantime, I consider it just and equitable to order that the owner of Lot 1 is responsible for the brokerage fees of $780 incurred in securing alternative insurance that would not have been necessary but for the change in use of Lot 1 to short-term letting.

[45] In the event that a claim needs to be made on the body corporate insurance policy, section 118 of the Small Schemes Module provides some guidance on who should pay the excess. If a claim is made and there is a dispute about responsibility for the payment of the excess, then either party may utilise the dispute resolution services provided by this office.

^[1] Certificate of Insurance dated 22 November 2017 from AAMI (Policy Number HSA089610504)

^[2] Policy Number 18144194P1

^[3] Section 113 Small Schemes Module

^[4] Section 121 Small Schemes Module

^[5] Section 116(1) Small Schemes Module

^[6] Section 116(2) Small Schemes Module

^[7] See section 10 Act

^[8] See section 31 Act

^[9] See section 80 Small Schemes Module

^[10] See section 80(5) Small Schemes Module

^[11] See section 88(1) Small Schemes Module

^[12] See section 93 Small Schemes Module

^[13] See section 112 Small Schemes Module

^[14] See section 121 Small Schemes Module