Ask an Expert: What underwriting questions determine if a defective building is insurable?

Determining the insurability of a property with defects is driven by several factors however the two main contributing factors would be:

• the extent/severity of defects present
• the body corporate’s attitude to rectification, including whether there is a consensus among owners to rectify and how long the defects remain outstanding/unresolved.

While minor or moderate defects can generally be underwritten with special conditions, major defects should be carefully examined with thorough questioning and referral to the most senior underwriters.

Depending on the availability of professional reports into the issues, the nature of questions may vary, however the following questions allow the underwriter to gather enough information to make an initial assessment on acceptability. 

The general questioning could include some or all of following:

1. What defects are present?

2. What is the severity of the defect:

• Minor may include cosmetic issues
• Moderate may include building structural issues without imminent danger, but which will deteriorate without intervention.
• Major problems with structural integrity that pose risk to life/safety

3. If risk to life/safety, have the body corporate done anything proactive to reduce risk.

• (i.e. unsafe balconies > restrict access). 
  
  • If No = Decline may be the only option
  • If Yes = may be underwritten with strict adherence to conditions and rectification timeframes

4. What action has been taken by the Owners Corporation to address the issues present?

5. Have the owners engaged a suitability qualified professional/specialist to assess/comment on the defects and rectification methods?

6. Are works ordered/scheduled to rectify the defects?

• If no, how long have the owners known about the defects? 
• What is reason for delay in getting these addressed?
• What is the process to obtain a work order, i.e. is an Extraordinary General Meeting required and when will that be scheduled?

7. Is the body corporate taking legal action against a builder/developer? 

• What is the current status of legal actions?
• When is the legal action intended to be resolved?

8. What is the timeframe for rectification?

9. Do the owners have sufficient funds to pay for the rectification of defects or is a Special Levy required?

I hope this assists you in making your underwriting decision.

Attributable to Daniel De Bonis, National Underwriter, CHU Underwriting Agencies.

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