17 July 2007
Section 12 of the Building Management (Amendment) Ordinance 2000 (which is yet to come into force) requires each owners' corporation ("OC
") to procure and keep in force a policy of third party risks insurance in relation to the common parts of the building and the property of the OC. Under section 41 of the Building Management Ordinance, the Chief Executive in Council may make regulations for the effecting of such insurance policy. The Regulation
") was accordingly published in the Government Gazette on 6 July 2007.
This update examines the main provisions of the Regulation which prescribe the liabilities and the statutory minimum amount to be covered by the subject third party insurance and other detailed requirements for all OCs in respect of such insurance.
Liabilities to be covered
An insurance policy is required to cover an OC for any liability which it may incur in respect of the death of, or bodily injury to, any person. It is however not a mandatory requirement for the third party risks insurance policy to cover any liability arising out of a breach of duty imposed by law in relation to unauthorised building works and such other liabilities as set out in section 3(2) of the Regulation.
Minimum amount to be covered
Under the Regulation, the policy for each OC shall provide insurance of not less than HK$10 million in respect of any liability that may be incurred in respect of the death, or bodily injury, or both, of a third party, arising out of one event.
Notice of insurance
An insurance company is required to issue to the OC a notice of insurance when it issues a policy and the OC is required to display the notice in a prominent place in the building.
Avoidance of restrictions in policies
Under section 6(1) of the Regulation, a provision in the policy which restricts the insurance by reference to a matter set out in section 6(2) of the Regulation (i.e. the number of claims that may be made, the age, condition, maintenance or use of the building, the number of flats in or the existence of an order, notice or direction in relation to that building) will be of no effect.
However, section 6(1) does not apply where a policy restricts the insurance by reference to the condition or maintenance of the building or the use of the building or the existence of an order, notice or direction in relation to the building, AND requires the OC to exercise reasonable diligence to keep that building in good condition and maintenance or to ensure compliance with the Deed of Mutual Covenant concerned in relation to the use of that building or to comply with the relevant order, notice or direction, AND the death or bodily injury in question is directly caused by the OC's contravention of such requirement.
If a provision in the policy restricts the insurance in the event of the OC's failure to comply with a condition after the loss has taken place, the provision will be of no effect.
Avoidance of agreements or arrangements as to liability towards third party
An agreement which purports to negate or qualify the liability of an OC towards a third party that arises after the agreement is made will be of no effect. If a person has willingly accepted the risk of negligence on the part of the OC, the acceptance does not negate the liability of the OC.
Insurance companies to satisfy judgments
If a third party has obtained judgment against an OC in respect of a prescribed liability covered by a policy, the insurance company is required to pay to the third party any sum payable under the judgment up to the amount covered by the policy. However, section 9 of the Regulation sets out the exceptions to such requirement (for example, where before or within 7 days after the commencement of the proceedings, the insurance company had no notice of the bringing of the proceedings, or where the policy was cancelled by mutual consent or by virtue of any provision contained in the policy before the happening of the event that was the cause of the death or bodily injury giving rise to the liability).
Winding up of OC, etc. not to affect claims by third party
The insolvency of an OC or the third party's direct right of action against the insurance company under the Third Parties (Rights against Insurers) Ordinance (Cap.273) does not affect the OC's prescribed liability under the Regulation. The third party's right against the insurance company under the Regulation is not affected by the direct right of action against the insurance company under Cap.273.
Duty of OC to give information as to insurance
An OC is required to give to a person making a claim against it information as to the third party risks insurance by which it is covered.
As the civil liability of OCs and the owners arising out of bodily injury or death of a third party from accidents happening in the common parts of a building could be substantial, the taking out of third party risks insurance by all OCs should afford better protection of the interests of the owners as well as the third parties concerned.
OCs and property management companies should familiarise themselves with the new requirements under the Regulation and arrange to take out relevant third party risks insurance. It is the Government's plan to require compulsory insurance for all OCs starting from 1 January 2009.
For further information, please contact:
Phone: +852 2843 4289
Fax: +852 2103 5040
Position: Senior Associate
Phone: +852 2843 2403
Fax: +852 2103 5147