Insuring Against Building Defects !

The drama that engulfed the residents of Mascot Tower on Friday night must send shivers down the spine of millions of other people who live in multi-story buildings across Australia.  This building was completed in 2008 and has performed admirably for the past twelve years, but cracks in the walls of the underground car park caused structural engineers to order an evacuation.

At 9 pm emergency workers were knocking on doors and ordering residents to leave the building immediately.  The occupants of its 122 apartments found themselves in the street with basically just the clothes on their backs.  One man was without his wallet and credit cards and had an interesting several days before he was allowed back in to retrieve them.

The people who live in Mascot Towers are the usual mix of owners and renters.  Those renting are probably subject to a fixed rental agreement for a period of time and can be legally required to pay that rent despite being forced out of the building.  Owners with mortgages will find the banks unyielding in expecting monthly payments due dates to be met.

At this stage, the cause of wall movement in the building is yet to be determined but the owners of apartments face a demand for a one million dollar emergency  contribution to cover the cost of the supports put in place to stop further damage. There are vague estimates that the bill for finally securing the building will probably run past the five million dollar mark.

What is absolutely certain is that apartments in this building are unsaleable at present.  No financial entity would even consider granting a loan even if a unit was offered at a fire sale price, and the reputational damage will haunt this building long after whatever remedial work is completed.   The owners who bought in good faith are going to suffer a severe loss on their investment.

The natural reaction is to look to the insurance cover taken out by the body corporate.  That will certainly cover damage by a building fire or an aircraft crashing into the structure - but it doesn't cover the building falling apart.  There is the expectation that if that is caused by an external factor that can become court action to recover remedial costs, but finding the cause will involve expensive litigation because claims will be vigorously defended,.

It is obvious that this is fast becoming a financial mess.  Once the supports have denied further wall movement the residents may be able to reclaim furniture and personal effects but it is unlikely they will be able to return to residence before the structure is again structurally secure.   The fact that owners are legally responsible for  rectification costs may force some people to seek bankruptcy protection.

The fact that this city has suffered two major building defects in the past six months is going to retard confidence in high rise living.  The concept of insurance is based on the rare nature of claims compared to the risks insured against.  For instance, the number of house fires in this city is minimal when compared with the number of dwellings scattered across the city.

The insurance industry would do well to consider offering a building integrity policy against just such a structural calamity that befell Opal Towers and now Mascot Towers.   It might take assurance that such cover is in place to restore confidence in high rise investment.