Making a Strata Insurance Claim: Who Pays the Excess?

A flexible hose under a kitchen sink let go on the eighth floor at two in the morning. By the time anyone noticed, water had run through three apartments below. The building was properly insured and the repair bill was covered. What nobody had thought about was the excess, which on this policy was $10,000. The owner upstairs said the body corporate should pay it, because common property was involved. The body corporate said the owner should pay it, because the hose was inside his lot and he had never replaced it. The three owners underneath, who had done nothing wrong at all, discovered they had no say and a very wet ceiling. The argument outlasted the repairs.

Insurance is one of the largest line items in almost every body corporate budget, and most owners never think about it until something breaks. When it does, the question is rarely whether the building is covered. It is who carries the excess, who organises the repair, and what happens to everything the policy does not cover. Our guide to what body corporate insurance actually covers sets out the policy itself. This piece is about what happens when you need to use it.

What the Building Policy Covers, and What It Does Not

A strata or body corporate policy insures the building: the structure, the common property, and generally the original fixtures and fittings of each lot as they were when the scheme was registered. That is broader than many owners expect and narrower than others assume.

Typically covered: the structure, common property, common services, and the standard fixtures in your apartment such as original kitchen cabinetry, bathroom fittings and floor coverings that came with the building.

Typically not covered: your contents, your own improvements and upgrades, and anything the policy specifically excludes. If you replaced the original kitchen with a much better one, the difference is usually yours to insure. This is the single most common gap owners discover at the worst possible moment.

The boundary between what the body corporate insures and what you insure tends to track the boundary between common property and lot property, which is its own source of confusion. Our guide to common property versus lot property covers where that line usually falls.

How a Claim Actually Runs

Owners often assume they lodge a claim themselves. Usually they do not. For damage to the building, the claim belongs to the body corporate as the insured, and it is normally lodged by the strata manager or the committee.

The practical sequence looks like this.

1. Stop the damage and record it. Turn off the water, take photographs and video before anything is cleaned up or repaired, and keep them. Evidence gathered in the first hour is worth more than anything gathered later.
2. Notify the strata manager or committee immediately. Do not wait to see how bad it is. Late notification is a genuine reason claims get reduced or refused.
3. Get the cause fixed and documented. Insurers generally want an invoice that identifies what caused the water entry and confirms it has been rectified. A plumber's report saying "repaired leak" is much weaker than one that identifies the failed component.
4. Obtain quotes for the resulting damage. At least one, often more, for making good.
5. The claim is lodged with the insurer or broker by the body corporate, with the cause report, the quotes and the photographs.
6. The insurer assesses, sometimes sending a loss adjuster, and either accepts, accepts in part, or declines.

Two things speed this up more than anything else. The first is early notification. The second is a clear report on the cause, because most disputes about strata claims are really disputes about what caused the damage.

The Excess: The Part Nobody Plans For

Here is the uncomfortable reality. In most jurisdictions the legislation does not clearly say who bears the excess on a strata insurance claim. The insurer does not much care either. It will settle the claim less the excess and leave the parties to sort out between themselves who funds it. The insurer has no power to compel any particular person to pay it.

What fills the gap is a mix of state rules, scheme by-laws and a general fairness principle.

Queensland is relatively clear. Where a claim affects two or more lots or involves common property, the body corporate is generally responsible for the excess. The body corporate can, however, decide it is reasonable for the owner whose lot caused the damage to bear it, which is common where there has been neglect.

New South Wales legislation does not specify who pays. In practice the benefit principle is often applied: the party who genuinely benefits from the claim should carry the excess. That is less obvious than it sounds. If a leak from your apartment damages the unit below, the owner below is the one being repaired, but you are the one who benefits most, because the claim relieves you of a liability you would otherwise carry personally.

Other states vary again, and in several the same silence produces the same benefit-principle reasoning.

Your by-laws may deal with it. Some schemes have adopted by-laws that allocate the excess in defined circumstances. Check yours before arguing from first principles, because a by-law on point will usually settle the question. Our by-laws guide explains how to find and read them.

When the Damage Is Worth Less Than the Excess

This situation is more common than large claims, and it catches people out.

If the excess is $10,000 and the damage is $6,000, there is no useful claim. The insurance is intact and irrelevant. The repair has to be funded by the body corporate, by an owner, or by whoever is found responsible, and the argument about who pays happens without an insurer in the room.

High excesses are often chosen deliberately to hold the premium down, particularly in buildings with a history of water claims or a cladding issue. That is a defensible trade-off, but it should be a conscious one. A building that has quietly accepted a $20,000 excess to keep its premium manageable has effectively self-insured for every small and medium event. If your building has taken that path, the capital works fund and the admin fund need to be able to absorb it, and owners deserve to be told.

Premiums have risen sharply across the country in recent years, and higher excesses are one of the main ways bodies corporate have absorbed that. Our post on why strata insurance premiums have doubled explains what has been driving it.

If the Claim Is Refused

Refusals in strata cluster around a few reasons: gradual deterioration rather than a sudden event, a defect rather than damage, a maintenance failure the body corporate knew about, or an exclusion in the policy. Water ingress claims are refused more often than any other type, usually on the basis that the water got in through a failed membrane or unrepaired defect over time rather than through a one-off incident.

If a claim is declined:

• Get the reason in writing, citing the specific policy clause relied on.
• Test the causation. A decline based on "gradual deterioration" can often be challenged with a better engineering or plumbing report. This is where a poor initial cause report costs real money.
• Check whether it is a defect claim instead. If the damage stems from a building defect rather than an insurable event, the pathway may be a defect claim against the builder rather than an insurance claim. Our guide to the six-year defect window explains the timeframes, which are strict.
• Use the insurer's internal dispute resolution process, then escalate to the Australian Financial Complaints Authority if it is not resolved. AFCA is free for consumers and can consider strata insurance disputes.
• Keep the owners informed. A declined claim usually means a special levy conversation is coming, and owners take that far better when they have seen it approaching.

Key Takeaways

• The building policy covers the structure and original fixtures. Your contents and your own upgrades are yours to insure, and that gap surfaces at the worst time.
• The body corporate normally lodges the claim, not the individual owner, so notify the strata manager immediately rather than waiting.
• Most legislation is silent on who pays the excess. Queensland gives clearer guidance; elsewhere the benefit principle and your scheme's by-laws usually decide it.
• A high excess is a decision to self-insure for everything below it. Make sure your building has made that choice deliberately and can fund it.
• Document the cause properly from day one. Most refused strata claims turn on causation, and a vague plumber's invoice is what loses them.

Compare body corporate fees across Australia at BodyCorporateFees.com.

This article is for informational purposes only and should not be considered legal, financial or insurance advice. Policy terms, state legislation and scheme by-laws all affect how an excess is allocated. Always read your building's policy and seek advice from a qualified insurance broker or strata lawyer about a specific claim.