What is the duty of disclosure?
As an owner and a member of a body corporate you have a legal responsibility, under Section 21 of the Insurance Contracts Act 1984 (Cth) (the Act) to disclose all relevant information that could affect an insurer’s decision on the insurance cover they can offer.
An insurance policy is a legally binding contract between the insurer and the policyholder. It sets out the terms and conditions under which you agree to pay a premium and how they agree to compensate you for a loss after an unforeseen event.
If there is any new information that arises during the period of insurance which may increase the risk of loss or damage being suffered this must be disclosed.
The responsibility to disclose information relevant to the insurer’s decision applies before the insurance policy is entered into, and any time the policy is renewed, reinstated, extended, or varied.
What do I need to tell my insurer?
So, what do you actually need to tell your strata insurer? In accordance with the Act, a body corporate should tell the insurer about all relevant matters. You are only not obligated to disclose matters that the insurer already knows (or ought to know) and that are of common knowledge, or that diminish – or reduce – the risk.
Examples of what to disclose:
- Known defects (including defects reports and registers) or pre-existing damage, including any unrepaired maintenance. This may include (but is not limited to):
- Water leaks through roofs or windows
- Downpipe and drain issues
- Tree root issues
- Balcony issues
- Any planned changes to common property such as to carparks, lifts, pools, fire and security systems.
- A copy of the building or scheme’s claims history.
What are the consequences of non-disclosure?
If an owner or body corporate fails to share all relevant information with the insurer before the insurance policy is entered into, renewed, reinstated, extended or varied then the insurer may choose to reduce the amount they pay out on a claim, or cancel the policy, or both.
Where non-disclosure is innocent in nature then, under Section 54 of the Act, the insurer may not necessarily refuse to pay a claim entirely, but they are entitled to reduce their liability by an amount with fairly represents the extent to which they have been prejudiced by the nondisclosure. This can result in the insurer’s liability being reduced to nil.
In addition, under Section 60 of the Act the insurer has the right to cancel the insurance policy where a body corporate has failed to comply with their duty of disclosure.
If a body corporate fraudulently fails to comply with their duty – such as where it is aware of information that will be of relevance to an insurer and purposefully elects to not disclose – then the insurer may have a right under Section 28 of the Act to treat the insurance policy as never having existed. Where this occurs, the body corporate may be left exposed and uninsured.
Some other implications in the event of fraudulent non-disclosure include that:
- Committee members may not have the benefit of legislative protections against their own personal liability – as they will not be seen to have acted ‘in good faith’; and
- Protection under any ‘Office Bearers Liability’ insurance policy will also be compromised, owing to policy exclusions for claims arising from dishonest or fraudulent conduct.
If Strata Managers are operating under delegated authority from a body corporate, the duty of disclosure extends to them also. This means that liability for non-disclosure, including fraudulent non-disclosure, may extend to them, even in cases where the body corporate has instructed them not to disclose information.
The information contained in this article is general information only and is not legal advice. The currency, accuracy and completeness of this information should be verified by obtaining independent legal advice before you take any action or rely upon it in any way.
For further information, please contact our Media/Marketing Team on 1300 724 678.