Earlier this month, a piece of concrete peeled off from a 50-years-old building in To Kwa Wan, causing head injury to a pedestrian and once again raising concerns of building maintenance, especially for old-age building.  It was a mercy that the pedestrian suffered no serious injury.  On the other hand, the building has neither an Owners’ Corporation (“OC”) nor third party risks insurance in place.  As such, the owners could count themselves lucky too as they could have been required to share among themselves a huge amount of damages if it were a more serious or even fatal accident.

This incident provides a perfect example as to the need for third party risks insurance, which shall become a mandatory requirement for OCs with the Building Management (Third Party Risks Insurance) Regulation (“the Regulation”) taking effect on 1 January 2011.

The Regulation

Under the new section 28 of the Building Management Ordinance and the Regulation, which will both take effect on 1 January 2011, an OC is required to procure and keep in force in relation to the common parts of the building and the property of the OC, a policy of insurance in respect of third party risks.

Scope and minimum insured amount

The scope of the insurance shall cover all liabilities incurred by an OC in relation to the common parts (e.g. external walls, passageways, corridors, staircases, roofs, lifts etc.) of the building and the property of the OC in respect of the bodily injury to or the death of a third party.  The minimum insured amount of each policy shall be $10 million per event.

Liability

If an OC fails to comply with the requirement to procure third party risks insurance as above, every member of the management committee shall be guilty of an offence and shall be liable on conviction to a maximum fine of $50,000.

Existence of unauthorized building works (“UBW”)

Insurance company may not be willing to provide insurance coverage if there are any UBW attached to the building.  This also explains why a small portion of OC has so far failed to procure a third party risks insurance for their buildings.  However, if accidents caused by these UBW occur at a time when there is no third party risks insurance in place, the OCs or the owners would have to bear all the civil liabilities incurred.  In addition, every member of the management committee will also be liable to a maximum fine of $50,000 as mentioned above.  Therefore if there are UBW in their buildings, the OCs should, in the interest of third party and their own, rectify or reinstate the UBW by enforcing the Deeds of Mutual Covenant, in addition to their statutory duty to procure third party risks insurance.

Notice to owners and Land Registry

After the issuance of a policy, the OC should issue a notice of insurance giving particulars of the policy, which shall be display in a prominent place in the building as long as the policy is in effect.  The secretary of the Management Committee shall also within 28 days after the issuance of a policy, file a notice giving particulars of the policy to the Land Registry.

The significance of third party risks insurance

In fact, the significance of procuring a third party risks insurance goes beyond the statutory obligation imposed by the Regulation.  By covering the civil liabilities in relation to accidents caused by the common parts of the building, a third party risks insurance could ensure better protection of the interests of the owners and third parties concerned as well as reducing the risks faced by the owners in times of accidents.

In the unfortunate event of the Albert House incident (添喜大廈案件) in 1994, the canopy of the building collapsed, causing a passer-by’s life and injuries to 13 others.  The Court issued an order for compensation to the victims which amounted to $33 million.  As there was no third-party risks insurance in place, the whole burden of $33 million as well as the substantial legal costs incurred

Ultimately, each owner, including those who purchased the property after the accident, had to pay around $200,000 - $300,000 for their share of liability.

Whilst an OC may have dutifully performed its duty to manage and maintain the building properly, accidents, unfortunately, do happen.  Third party risks insurance is important as it could help to alleviate the burden of OCs and owners in cases of such accidents, which could be heavy in financial terms, as shown in the Albert House incident.

Conclusion

Apart from managing and maintaining the building properly, it is equally important for OCs to be insured against their civil liabilities in times of accidents.

For the OCs and owners who already have a third party risks insurance policy in place, make sure the policy is kept in force and its particulars including the coverage and the sum insured comply with the Regulation.  For those who have no such policy in place, it is important to take action now and if required, assistance could be sought from the Home Affairs Department and the District Office.

Intended property purchasers are also reminded to confirm if there is any third party risks insurance policy in place and any pending/un-settled legal action in respect of the relevant property.

Has your building got insured?  If not, act now!