The amount of the excess payable by an owners corporation when a claim is made on a home owner's warranty insurance policy in relation to common property building defects has now been determined by the courts in NSW.

A recent court case establishes that when a claim is made by the owners corporation on the home owners warranty insurance policy for a breach of the statutory warranty affecting the common property, only one excess is payable.

The case is important, particularly for those who live in residential units, because it means it is not necessary for lot proprietors to make individual claims under the insurance policy in order for the insurer's indemnity to be enforced. Similarly, it is not necessary for the owners corporation to claim indemnity on behalf of the individual lot proprietors.

Lot proprietors will now be able to breathe a sigh of relief as they will not be required to pay an excess in respect of defects to common property.

In the case, the insurer argued that the policy had been taken out on behalf of each of 201 lot proprietors and that the owners corporation had made a claim for indemnity on behalf of each of the lot proprietors. The excess payable, the insurer argued, was to be determined by multiplying the number of lots insured (201) by the $500 excess. It contended the excess payable was $100,500 – an amount that exceeded the owners corporation's claim.

The Court of Appeal's decision to strike down the insurer's argument removes the absurdity that would permit a claim by a lot proprietor for $700 for minor defects to a bathroom cupboard in a lot, while a claim in respect of a $100,000 defect in common property would not be met.


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