Introduction
Managing a body corporate’s finances requires a high duty of trust. The risk of the mismanagement of funds needs to be mitigated against. Fidelity insurance covers the body corporate against any fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the body corporate.
What does the legislation require?
PMR 23(7) states that a body corporate must take out insurance for an amount determined by members in general meeting to cover the risk of loss of funds belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the body corporate.
The minimum amount required
The PMRs are silent on the amount of fidelity insurance cover, and leaves it to the discretion of the members. Regulation 15 made under the Community Schemes Ombuds Service Act 9 of 2011 (the “CSOS Act”) takes this legislative requirement further by imposing specific obligations on the boy corporate in regard to fidelity insurance, and sets the minimum amount that the cover must be.
It requires that every community scheme must insure against the risk of loss of money belonging to the community scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insurable person.
An “insurable person” means any scheme executive; employee or agent of a community scheme who has control over the money of a community scheme; managing agent; or contractor, employee or other person acting on behalf of or under the direction of a managing agent, who in the normal course of the community scheme’s affairs has access to or control over the monies of the community scheme.
The minimum amount of the fidelity insurance cover required is the total value of:
(a) the community scheme’s investments and reserves at the end of its last financial year; and
(b) 25 per cent of the community scheme’s operational budget for its current financial year.
It is important to note that in terms of PMR 23(7) the body corporate can take out fidelity insurance for a higher amount than is required according to the formula as set out above.
The insurance cover must:
(a) provide for payment of a loss by the insurer to the community scheme within a reasonable period after reasonably satisfactory proof of the loss has been furnished to the insurer; and
(b) not require that criminal or civil proceedings be taken or completed against the insured person before payment is made under the insurance policy.
Exclusion
A community scheme is not obliged to obtain fidelity cover for an insurable person if that person has delivered to the community schemes written proof that:
(a) the monies of the community scheme are covered by fidelity insurance that complies with the requirements as set out above; and
(b) the insurer concerned has noted the community scheme’s interest in the application of the proceeds of the policy, and undertaken not to cancel or withdraw cover without giving the community scheme at least 30 days written notice.
Conclusion
As we can see from this article the body corporate must obtain fidelity insurance. Insurance is a complicated arena, and bodies corporate should not shy away from employing reputable insurance brokers or advisers to assist them in obtaining advise and the best insurance cover for the scheme. These experts can provide risk management workshops assist with insurance advice, claims handling, and dispute resolution.
Body corporateinsurance is important for the protection against liability claims and financial loss. If an underinsured event occurs, the body corporate may face unexpected costs, increasing financial pressure leading to debt or emergency loans. Stratafin can provide funding options to cover essential repairs and costs not covered by insurance preventing the body corporate from accumulating debt in emergency situations.
WRITTEN BY DR CARRYN DURHAM
