Published: 21 July 2026
Insurance is one of the most significant statutory responsibilities of a Body Corporate and one of the most important governance responsibilities of its Trustees. While most Trustees understand that the buildings must be insured, many are unaware of the broader legal obligations imposed by the Sectional Titles Schemes Management Act (STSMA), the Prescribed Management Rules (PMR) and the CSOS Regulations.
This chapter explains not only what insurance the Body Corporate is required to have, but also why the legislation requires it and the governance responsibilities that accompany those insurance obligations.
This chapter explains not only what insurance the Body Corporate is required to have, but also why the legislation requires it and the governance responsibilities that accompany those insurance obligations.
Why Insurance is Compulsory
Section 3(1)(h) and (i) of the STSMA, read together with PMR 23(1)(a), places a statutory duty on the Body Corporate to insure the buildings and keep them insured for their replacement value against fire and other prescribed risks.
The purpose of this compulsory insurance is to ensure that the scheme has sufficient financial protection to repair or rebuild the buildings following an insured event, thereby protecting both the owners' investments and the Body Corporate's statutory obligations.
The purpose of this compulsory insurance is to ensure that the scheme has sufficient financial protection to repair or rebuild the buildings following an insured event, thereby protecting both the owners' investments and the Body Corporate's statutory obligations.
Insurable Interest - Section 3 (6)
Why the Act gives the Body Corporate an "insurable interest"
The Body Corporate is, for the purposes of effecting any insurance under subsection (1)(h), considered to have an insurable interest in the replacement value of the building and must, for the purposes of effecting any other insurance under that subsection, be considered to have an insurable interest in the subject matter of such insurance.
What this means is that even though the Body Corporate does not own the individual sections, the law recognises that it has a legal interest in the buildings and in the subject matter of the insurance it is required or permitted to obtain. This allows the Body Corporate to insure all the buildings, including the individual sections and common property, for their full replacement value, as well as obtain any other insurance required or permitted by legislation.
The phrase “replacement value of the building..." means that the Body Corporate is required to insure the buildings for their full replacement value – that is, for what it would cost to rebuild them after a total loss.
The reference to "any other insurance" means that the Body Corporate is deemed to have an insurable interest in the subject matter of any other insurance that it takes out in terms of the STSMA. This enables the Body Corporate to obtain and enforce compulsory insurance, such as Public Liability and Fidelity Insurance, as well as any additional insurance authorised by the legislation.
The phrase “replacement value of the building..." means that the Body Corporate is required to insure the buildings for their full replacement value – that is, for what it would cost to rebuild them after a total loss.
The reference to "any other insurance" means that the Body Corporate is deemed to have an insurable interest in the subject matter of any other insurance that it takes out in terms of the STSMA. This enables the Body Corporate to obtain and enforce compulsory insurance, such as Public Liability and Fidelity Insurance, as well as any additional insurance authorised by the legislation.
STATUTORY REQUIREMENTS OF THE INSURANCE POLICY
Prescribed risks –Section 3(1)(h)and(i) and PMR 23(1)(a)
The legislation requires the Body Corporate's insurance policy to include cover for the following prescribed risks:
In addition to the prescribed risks, the Body Corporate's insurance policy must also include any additional risks determined by the members by special resolution as well as any risks that bondholders holding registered mortgage bonds over not less than 25% of the primary sections have, by written notice to the Body Corporate, required to be included in the insurance policy.
Who are qualifying bondholders? These are banks or other financial institutions holding registered mortgage bonds over not less than 25% of the primary sections in the scheme.
- Fire;
- Lightning, explosion and smoke;
- Riot, civil commotion, strikes, lock-outs, labour disturbances and malicious acts associated with political organisations;
- Storm, tempest, windstorm, hail and flood;
- Earthquake and subsidence;
- Escape of water, including the bursting or overflowing of water tanks, apparatus and pipes;
- Impact by aircraft or vehicles; and
- Housebreaking or attempted housebreaking.
In addition to the prescribed risks, the Body Corporate's insurance policy must also include any additional risks determined by the members by special resolution as well as any risks that bondholders holding registered mortgage bonds over not less than 25% of the primary sections have, by written notice to the Body Corporate, required to be included in the insurance policy.
Who are qualifying bondholders? These are banks or other financial institutions holding registered mortgage bonds over not less than 25% of the primary sections in the scheme.
Additional Insurance - PMR 23(8)(a)and(b)
The compulsory insurance prescribed by the STSMA represents the minimum insurance that the Body Corporate must maintain. PMR 23(8) permits the Body Corporate to obtain additional insurance in respect of the land and buildings, or any other insurable interest connected with the Body Corporate’s performance and functions, provided the Body Corporate has an insurable interest in the subject matter of the insurance and has obtained authorisation from the members by special resolution.
The type of additional insurance required will depend on the nature, size and risk profile of the community scheme.
Example: A mixed-use development with commercial premises, conference facilities or other specialised risks may decide that other specialised cover not required by the Act, is appropriate.
The type of additional insurance required will depend on the nature, size and risk profile of the community scheme.
Example: A mixed-use development with commercial premises, conference facilities or other specialised risks may decide that other specialised cover not required by the Act, is appropriate.
Public liability - PMR 23(6)(a)and(b)
The Prescribed Management Rules requires every Body Corporate to take out Public Liability Insurance.
This insurance protects the Body Corporate against legal claims where it is found to be legally responsible for:
For a successful claim, the claimant must generally prove that the Body Corporate was negligent and that its negligence caused the injury or damage.
The members determine the amount of public liability cover at a general meeting. However, the legislation prescribes a minimum cover of R10 million for any one claim and for the insurance period.
Many insurers, such as Hollard, provide higher minimum limits as part of their standard policy.
This insurance protects the Body Corporate against legal claims where it is found to be legally responsible for:
- bodily injury, illness or the death of a person occurring on or in connection with the common property; or
- damage to, or loss of, another person's property arising from an incident on or in connection with the common property.
For a successful claim, the claimant must generally prove that the Body Corporate was negligent and that its negligence caused the injury or damage.
The members determine the amount of public liability cover at a general meeting. However, the legislation prescribes a minimum cover of R10 million for any one claim and for the insurance period.
Many insurers, such as Hollard, provide higher minimum limits as part of their standard policy.
This cover does not generally extend to claims by owners in their capacity as members of the scheme.
Examples where Public Liability may apply:
- A visitor slips on an unrepaired wet staircase that the Body Corporate failed to maintain.
- A loose roof tile falls from the common property and damages a visitor's vehicle.
- A neglected boundary wall collapses onto a neighbouring property.
- A tree on the common property falls because it was obviously dead and had not been maintained.
Public Liability would generally not apply where:
- A visitor simply trips over their own feet without any negligence by the Body Corporate.
- An owner is injured inside his or her own section.
- Damage occurs where the Body Corporate could not reasonably have prevented the incident.
The Act says: "...on or in connection with the common property."
For example:
- A loose branch from a common property tree falls onto a car parked in the street outside the scheme.
- Water from a burst common property pipe damages a neighbouring property.
Those incidents occur "in connection with" the common property, even though they may not happen physically on it.
Fidelity insurance PMR 23(7) and Regulation 15(1) of the CSOS Act
The STSMA requires every Body Corporate to take out Fidelity Insurance to protect the scheme against the loss of funds resulting from fraud or dishonesty.
This insurance provides protection where money belonging to, or for which the Body Corporate is responsible, is misappropriated through the fraudulent or dishonest acts of persons entrusted with the scheme's funds.
The Community Schemes Ombud Service (CSOS) Regulations expand on this requirement by defining who must be covered by the policy. This includes:
This insurance provides protection where money belonging to, or for which the Body Corporate is responsible, is misappropriated through the fraudulent or dishonest acts of persons entrusted with the scheme's funds.
The Community Schemes Ombud Service (CSOS) Regulations expand on this requirement by defining who must be covered by the policy. This includes:
- Trustees or Directors;
- the Managing Agent;
- employees of the Body Corporate;
- contractors or agents acting on behalf of the Managing Agent; and
- any other person who, in the ordinary course of the scheme's affairs, has access to or control over the Body Corporate's funds.
Minimum level of Fidelity Cover
In addition, the CSOS Regulations prescribe the minimum amount of Fidelity Insurance that every community scheme must maintain.
The minimum cover is calculated as:
The minimum cover is calculated as:
- The total value of the scheme's investments and reserve funds at the end of the previous financial year; plus
- 25% of the current financial year's administrative fund budget.
Claims under the policy Regulation 15(4) CSOS Act
The Regulations also provide important protection for community schemes by requiring that:
- the insurer must pay a valid claim within a reasonable time after satisfactory proof of the loss has been provided; and
- the insurer may not insist that criminal or civil proceedings be completed before paying the claim.
Replacement values - PMR 23(1)(b)
The legislation also recognises that the standard replacement value of a section may not always be sufficient.
An owner or bondholder may, at any time, request the Body Corporate in writing to increase the replacement value specified for a section or exclusive use area. Any additional premium resulting from the increased replacement value is payable by the owner.
This commonly occurs where an owner has made improvements or installed higher-value finishes that increase the replacement cost of the section.
An owner or bondholder may, at any time, request the Body Corporate in writing to increase the replacement value specified for a section or exclusive use area. Any additional premium resulting from the increased replacement value is payable by the owner.
This commonly occurs where an owner has made improvements or installed higher-value finishes that increase the replacement cost of the section.
Average clause - PMR 23(1)(c)
PMR 23(1) (c) requires that the policy must restrict the application of any "average" clause to individual units and exclusive use areas, so that no such clause applies to the buildings as a whole
An average clause (also called the underinsurance clause) is applied when something is insured for less than its true replacement value.
For example:
Because your section is only insured for 75% of its value, the insurer may only pay 75% of the claim:
That is the average clause.
The legislation protects owners by ensuring that, if an average (underinsurance) clause applies, it is only applied to the individual unit or exclusive use area that is underinsured.
An average clause (also called the underinsurance clause) is applied when something is insured for less than its true replacement value.
For example:
- The true replacement value of your section is R2 million.
- It is only insured for R1.5 million (75% of its value).
- You suffer a fire causing R400,000 damage.
Because your section is only insured for 75% of its value, the insurer may only pay 75% of the claim:
- Claim = R400,000
- Insurer pays = R300,000
- Owner bears the remaining R100,000 (plus any excess).
That is the average clause.
The legislation protects owners by ensuring that, if an average (underinsurance) clause applies, it is only applied to the individual unit or exclusive use area that is underinsured.
Excesses - PMR 23(1)(e)
The Act recognises that an insurance policy may include an excess, being the amount payable by the insured before the insurer contributes towards a claim.
The amount of the excess will depend on the terms and conditions of the insurance policy and may vary depending on the type of claim. Trustees should review the applicable excesses each year as part of the insurance renewal process and ensure that owners are aware of the circumstances in which they may be responsible for paying an excess.
The amount of the excess will depend on the terms and conditions of the insurance policy and may vary depending on the type of claim. Trustees should review the applicable excesses each year as part of the insurance renewal process and ensure that owners are aware of the circumstances in which they may be responsible for paying an excess.
Responsibility for the Excess - PMR 23(2)(b)
The Prescribed Management Rules places responsibility for certain insurance excesses directly on the owner.
Where the damage relates to a part of the building that the owner is responsible for repairing and maintaining in terms of the STSMA or the Management Rules, the owner is responsible for paying the applicable insurance excess.
If requested by the Body Corporate, the owner must provide written proof from the insurer that the excess has been paid within seven days.
It is important to note that PMR 23(2)(b) does not state that the owner is responsible for every insurance excess.
It says: "...any excess amount that relates to damage to any part of the buildings that member is obliged to repair and maintain..."
That wording is deliberate. It's linking the excess to maintenance responsibility, not ownership of the section.
Where the damage relates to a part of the building that the owner is responsible for repairing and maintaining in terms of the STSMA or the Management Rules, the owner is responsible for paying the applicable insurance excess.
If requested by the Body Corporate, the owner must provide written proof from the insurer that the excess has been paid within seven days.
It is important to note that PMR 23(2)(b) does not state that the owner is responsible for every insurance excess.
It says: "...any excess amount that relates to damage to any part of the buildings that member is obliged to repair and maintain..."
That wording is deliberate. It's linking the excess to maintenance responsibility, not ownership of the section.
Why this provision is important
This provision reinforces an important principle of sectional title law:
Responsibility for the insurance excess generally follows responsibility for the maintenance of the area that caused the damage.
For example:
Where these components are the owner's maintenance responsibility, the owner will generally be responsible for the applicable excess. Conversely, where the damage results from common property that the Body Corporate is responsible for maintaining, the Body Corporate may be responsible for the excess.
Responsibility for the insurance excess generally follows responsibility for the maintenance of the area that caused the damage.
For example:
- A burst geyser serving only one section.
- A leaking bath trap.
- A leaking pipe within the median line.
- A failed shower waterproofing system.
Where these components are the owner's maintenance responsibility, the owner will generally be responsible for the applicable excess. Conversely, where the damage results from common property that the Body Corporate is responsible for maintaining, the Body Corporate may be responsible for the excess.
What happens if the entire building is destroyed? - Section 17(3)
If the building is so badly damaged or destroyed that it cannot simply be repaired, the owners don't automatically have to rebuild it exactly as it was.
Instead, the owners can decide, by unanimous resolution, on a different way forward or if they cannot agree, the Court can make that decision.
That scheme could deal with things such as:
Section 17(4) stipulates who may approach the Court if agreement cannot be reached.
These include:
Anyone with a significant legal or financial interest in the building may ask the Court to decide what should happen.
Section 17(5) gives the insurer the right to intervene in those Court proceedings. Why? Because the insurer has a direct financial interest in the insurance proceeds, the legislation also gives the insurer the right to participate in any Court proceedings dealing with the reconstruction of the scheme or the application of the insurance funds.
Instead, the owners can decide, by unanimous resolution, on a different way forward or if they cannot agree, the Court can make that decision.
That scheme could deal with things such as:
- whether the building/s will be rebuilt;
- whether it will be rebuilt differently;
- how the insurance money will be used;
- how owners' interests will be dealt with; and
- any other arrangements necessary to resolve the situation.
Section 17(4) stipulates who may approach the Court if agreement cannot be reached.
These include:
- the Body Corporate;
- an owner;
- a bank holding a mortgage bond;
- a registered lessee;
- the insurer;
- or the municipality.
Anyone with a significant legal or financial interest in the building may ask the Court to decide what should happen.
Section 17(5) gives the insurer the right to intervene in those Court proceedings. Why? Because the insurer has a direct financial interest in the insurance proceeds, the legislation also gives the insurer the right to participate in any Court proceedings dealing with the reconstruction of the scheme or the application of the insurance funds.
Why is this section in the Act?
Imagine a sectional title scheme burns down completely.
The insurer pays R150 million.
Now what?
Section 17 answers those questions.
It provides the legal mechanism for owners—and if necessary, the Court—to decide what happens to the scheme after a catastrophic loss.
The insurer pays R150 million.
Now what?
- Do you rebuild?
- Do you demolish?
- Do you sell the land?
- Do you divide the insurance money?
- Do some owners want to rebuild while others don't?
Section 17 answers those questions.
It provides the legal mechanism for owners—and if necessary, the Court—to decide what happens to the scheme after a catastrophic loss.
Conclusion
Understanding Body Corporate Insurance is about far more than simply knowing what the insurance policy covers. Trustees have a statutory responsibility to ensure that the scheme is adequately insured, that the insurance complies with the requirements of the STSMA and the Prescribed Management Rules, and that appropriate governance processes are followed throughout the year.
In Part Two, we explore the practical responsibilities of Trustees, including valuations, replacement value schedules, insurance proceeds, reserve fund considerations, owner rights and the important insurance decisions that must be made at each Annual General Meeting.
In Part Two, we explore the practical responsibilities of Trustees, including valuations, replacement value schedules, insurance proceeds, reserve fund considerations, owner rights and the important insurance decisions that must be made at each Annual General Meeting.
Related Articles
If you found this guide helpful, the following guides explore related insurance topics in detail:
- Administering Body Corporate Insurance for Trustees –– Part Two - explains the governance responsibilities that accompany those insurance obligations
- Body Corporate Insurance – What Every Owner Should Know – Understand what is covered by the Body Corporate's insurance policy, what owners should insure themselves and when additional insurance may be required.
- Who Pays the Excess – Common Insurance Disputes in Section Title schemes – Understand the responsibility for paying and excess and the numerous factors to take into account when determining responsibility.
- Understanding the Summary of Benefits – Understand what each section of the Summary of Benefits means and why it matters to your Scheme
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