Section 166 of the Strata Schemes Management Act 2015 (“Act”), which is set to commence on 30 November 2016, introduces new requirements.
A strata managing agent must provide the owners corporation with not less than 3 quotations from different providers for each type of insurance proposed by the agent to the owners corporation or provide written reasons to the owners corporation if less than 3 quotations are provided.
The draft regulation provides no assistance with interpreting the terms used and there have been no decided cases on these issues, so what this actually requires is unclear. The key issues seem to be:
Do the quotation requirements apply on an annual basis or only on putting into place the relevant policy?
- Although the section does not directly address the issue, the particular wording used seems to suggest that the requirement for provision of quotations is not linked to either effecting or renewing a policy, but rather the proposal of insurance by the strata managing agent. In other words, it is not the entry into an insurance contract or renewal of an existing insurance contract, which triggers the agent’s obligation, but rather the agent having proposed particular insurance to the owners corporation.
- It strongly arguable that, in relation to an existing policy, where renewal is under consideration, the agent will have satisfied its obligation if it provided the quotations when the policy was effected.
- That said, care needs to be exercised in this area. Agents receiving commission income in relation to a renewal would have incentive to see the policy renewed. That would weigh on how the decision to renew the policy is presented to the owners corporation and if not properly handled, could amount to the agent. “proposing” the renewal and arguably the insurance.
What action triggers the quotation requirements?
- Further to the analysis in paragraph 1, the trigger is that insurance is “proposed” by the agent.
- The legislation does not assist with its failure to define “proposed”, but the better view seems to be that some overt action is required. Requesting a quotation from insurers selected by the owners corporation may be insufficient, while a request for quotations from insurers as selected by the agent may be caught.
Can the “written reasons” requirements be satisfied in the agency agreement or must they be given at the time of provision of the quotations? In my view, this is open to doubt, the better view being that the written reasons must be given at the time of provision of the quotations.
- The provision of written reasons is presented as an alternative to the provision of three or more quotations and implicitly requires consideration of the specific scenario. In my view, it is not sufficient to do this at the time entering into the agency agreement, without consideration of the specific circumstances of the time of consideration of the insurance.
- Further, Section 270 of the Act prevents an agreement operating contrary to the legislation and an agreement (in the agency agreement) to waive the right to the quotations or written reasons will likely be caught by this.
- That said, the better view is that neither quotations nor written reasons for not providing them are required if the agent’s obligation has not been triggered by proposing the insurance.
- Further, there is no express obligation that the reasons be of any particular type or meet any particular requirements. On its face, the section suggests that any reasons can be given, as long as they are given. However, that may be in tension with general duties under the agency agreement, the property stock and business agents legislation and the law of negligence.
What would be the position if the agent engaged a broker?
- The agent would not be proposing insurance and would hence not be caught by section 166 on the basis only of engagement of a broker.
- The broker is not a strata managing agent and would not be subject to the requirements of section 166.
How is this issue best addressed in the agency agreement?
- An insurance clause could be inserted, setting out the framework within which insurance issues will be managed.
- This could be used to negate an argument that the agent has “proposed” insurance, e.g. limiting quotations to those from insurers selected by the owners corporation.
- The clause cannot reliably address in advance the need to provide written reasons in lieu of three or more quotations, where required.
***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Prepared by David Bannerman and Mark Pollinger
21 June 2016
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