II. Third party insurance
Many Hong Kong citizens may have heard of the Court case involving the building Albert House. In 1994, a concrete canopy on the external wall of Albert House collapsed, killing one person and injuring seven. The Incorporated Owners of Albert House were found to be liable and had to pay substantial damages. Unfortunately, the Incorporated Owners were not covered by third party liability insurance. This eventually led to the winding-up of the Incorporated Owners, which meant that each individual owner of a flat in Albert House had to contribute to the damages according to his/her respective share in the building.
This case highlights the importance of third party insurance in relation to the maintenance of the common parts of buildings. The Hong Kong Government subsequently imposed a mandatory duty on all owners’ corporations to keep in force an insurance policy in respect of third party risks in relation to the common parts of the building and property of the corporation.
The Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong) and the Building Management (Third Party Risks Insurance) Regulation ( Cap. 344B of the Laws of Hong Kong) require an owners’ corporation (OC) to buy third party risks insurance in order to reduce the risk of large compensation faced by owners in case of accidents and, at the same time, offer better protection for members of the public.
Third party risks insurance provides compensation for financial loss in the case of the death of, or bodily injury to, a third party in relation to common parts and facilities (such as lifts, staircases, fire service installations, etc.) of the building. If compensation is required, it is paid by the insurance company.
A. Duty of the OC to procure third party risks insurance
Under section 28 of the Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong), the OC is required to procure and keep in force a policy of third party risks insurance in relation to the common parts of the building, facilities and property.
The Building Management Ordinance ( Cap. 344 ) requires the OC to procure insurance which provides coverage of no less than HK$10 million for an accident in relation to the common parts and facilities of the building resulting bodily injury or death.
The OC has a legal obligation to procure a policy of third party risks insurance. Therefore, the OC must be at least one of the insured parties of the policy. If the property management company has already procured a policy of third party risks insurnace for the building, the OC may request that the property management company and the insurance company add the OC as one of the insured parties of the existing policy or take out another policy in the name of the OC.
If the policy is procured in the joint names of the OC and the property management company, the policy must satisfy the legal requirement by providing not less than HK$10 million insurance cover for third party bodily injury or death claims.
B. Liabilities to be covered by third party risks insurance
Third party risks insurance is required to cover liabilities that may be incurred by the OC in relation to the common parts of the building (e.g. external walls, passageways, corridors, staircases, roofs and lifts) and property in respect of the bodily injury to, and/or the death of, a third party.
Third parties include owners, tenants, occupiers, visitors, staff of the property management company, or trespassers of the building.
Direct employees of the OC are not regarded as a third party.
The third party risks insurance does not need to cover property damage. However, the OC is at liberty to insure against property damage. Although such insurance is not mandatory, the OC is liable for compensation if damage is done to a third party’s property due to the negligence of the OC.
The OC does not have the legal obligation to take out an insurance policy to cover liabilities arising from unauthorised building works. It is not a mandatory requirement. BUT if the court finds that the OC is responsible for an accident caused by unauthorised building works, the OC and/or the owners are liable for all the civil liabilities incurred.
Generally speaking, insurance companies do not provide insurance for unauthorised building works. If there are unauthorised building works in the building, the OC should remove them for the benefit of the OC, building owners and third parties who may be affected by the unauthorised works.
C. Minimum insured amount
The minimum insured amount of each policy must be $10 million per event.
D. Notice to owners
After the OC has procured third party risks insurance, the insurance company issues a notice of insurance giving the particulars of the policy.
The OC is required to display the notice of insurance in a prominent place in the building as long as the policy is in effect.
E. Report to the Land Registrar
The secretary of the management committee of the OC must, within 28 days after the insurance policy takes effect, give notice of the name and address of the insurance company and the period covered by the insurance policy to the Land Registrar.
F. Legal liability for failure to procure third party risks insurance
If the OC fails to procure third party risks insurance, every member of the management committee of the OC is guilty of an offence and is liable on conviction to a maximum fine of HK$50,000.
It would be a defence for members of the management committee of the OC if they could demonstrate that they had exercised all due diligence to procure insurance.
G. Protection for the OC and third parties
Duty of the OC to give information as to insurance
If a third party makes a claim against the OC, the OC must state whether it is insured in respect of the claim and give particulars of the policy within 10 days after receiving a written request.
Avoidance of restrictions in policies
The restriction will have no effect on any compensation paid by the insurance company if a policy restricts the OC’s insurance in any of the following ways:
- the number of claims that may be made during the period the policy is in effect or any part of that period;
- the age of the building to which the policy relates;
- the condition or maintenance of the building;
- the number of flats in the building;
- the use of the building or parts thereof; or
- the existence of a statutory instrument in relation to the building.
However, if the insurance policy includes terms relating to the above matters 1 to 6, the insurance company can make a claim against the OC after the insurance company pays compensation for bodily injury to, or the death of, a third party.
Avoidance of certain agreements or arrangements regarding liability to a third party
Any agreement between the OC and a third party that purports to negate or restrict any liability to the third party will be of no effect.
Winding up of the OC
If the OC becomes insolvent and is wound up, this will not affect the OC’s liability covered by the third party insurance policy.