Water damage claims expose risk to owners’ corporations

Water damage claims expose risk to owners’ corporations
Tom Bacon

Studies of recent VCAT cases in water damage claims highlight the need for owners’ corporations (OCs) to work faster and work smarter.

Two recent decisions from VCAT (the decision of Guy, and the decision of Dunn) involving claims by lot owners for compensation from water damage to their units has highlighted the risks that OCs are exposed to.

In both cases, the claimants reported water damage, but the OC dragged their feet in investigating the causes of the water damage.

Pausing for a moment, a number of committee members and strata managers are under the misapprehension that if the OC’s strata insurance policy declines a water damage claim, then that is the end of the matter.

Of course, that position is wrong in law. If the insurer declines the claim, all that means is that the OC is unable to obtain insurance coverage for the loss. If the lot owner has suffered loss and damage, then the OC is liable at law for that loss and damage.

In both of these cases, the OC’s defence in VCAT was that the expert evidence was inconclusive as to the exact cause of the water ingress, and potentially on an interpretation of the strata plan – there was an argument that the water damage originated from lot property, rather than common property.

These legal arguments failed in VCAT, and the OCs were hit with massive bills for fixing the apartments and compensating for rental losses and damage to furnishings and personal effects.

Some important lessons that OCs should take away from these two cases are:

Failure to take proactive action to properly investigate and address issues concerning the maintenance and repair of common property may result in significant financial penalties as the Tribunal is as concerned with the conduct of the parties in attending to the matter quickly, and will not rescue the OC on technical legal arguments; and,

Supporting expert evidence (especially where there is countering evidence available) or delay caused by the conduct of another party cannot be solely relied upon to absolve the OC of its liability set out in the relevant legislation and case law.

If your OC receives a complaint about an issue with water ingress from the common property into lot property, it is important to first thoroughly investigate the issue, source advice from a reliable expert (and where there is doubt if the issue has arisen because of the common property, then consult a specialist lawyer also) and follow the recommendations provided. Above all it is important that the OC does not delay in responding and acting on a complaint as this is the most common way an OC can open itself up to liability and be found in breach of its duty.  •

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