Who is responsible for paying the excess when making an insurance claim for a block of flats?
There is no one simple answer to this for leaseholders and freeholders. First, check your lease and see if it stipulates who pays the excess in the event of a claim. If it doesn’t or is ambiguous, then best to deal with the matter now.
If you are a Director of Officer of a Residential Management Company (RMC), or a freeholder, best practice suggests you draw up an agreement which clearly states who is liable for any excess payments in the event of a claim. It will help manage the expectations of your fellow leaseholders and could avoid a lot of stress and resentment should the worst happen and you need to make a claim.
Even where the lease stipulates who is responsible, property leases can vary widely so check the detail carefully. Some leases specify who is responsible for paying the insurance excess, others don’t. This is often the case with older properties and where an excess may not have applied at the time the lease was written.
For those leases that do stipulate who is responsible, accountability can still vary and be a challenge to interpret. For example, some leases specify that where the claim involves one flat then the individual leaseholder is liable for the excess, or where more than one flat has been damaged then liability for the excess should be shared between all the affected leaseholders. But, what happens if there is a water leak in a top flat that damages property below, but with no damage to the flat where the leak originated? Is this flat liable to pay all or part of the excess too?
If the lease is not absolutely clear about the excess liability then put an agreement in place now and get proof that everyone is in agreement. It could avoid a lot of ill-feeling and arguments between neighbours in future.
Historically, small excesses were introduced to cover the costs of administering a claim. In more recent years, the excess can be increased to reduce the overall cost of a premium. However, a high excess can also lead to disputes among leaseholders so you need to consider the pros and cons of a high/low excess before making any decision.
Similarly, where the lease makes no provision for who is liable for the excess, seek agreement from your fellow leaseholders now, put it in writing and circulate a copy to everyone confirming that this is what you have all agreed. Much better to take control of the issue now rather than experience the added pressure of neighbours falling out with each other should you need to make a claim.
FP556-2016
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.