What is the Third Party risks insurance? Who should purchase them for the property?
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The Building Management Ordinance and the Building Management (Third Party Risks Insurance) Regulation require an owners’ corporation (OC) to procure and keep in force a policy of third party risk insurance. Third-Party 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 of the building.
The insurance can protect both the owners of the building, by reducing the risk of large compensation faced by owners in case of accidents, and the general public, as it offers better protection against potentially dangerous buildings.
If the OC fails to procure third party risk insurance, every member of the management committee of the OC is guilty of an offence and is liable, upon conviction, to a fine of HK$50,000.
What liabilities are covered by third party risk insurance?
Third-party risk insurance covers 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), in respect of the bodily injury to, and/or the death of, a third party. Third parties include owners, tenants, occupiers, visitors, or trespassers of the building.
It is not mandatory for the OC to take out insurance covering property damage. But it is encouraged for OC to do so, or else they will be liable for compensation for damage done to a third party’s property due to the negligence of the OC.
It is also not necessary to take out insurance covering liability from unauthorised building works. However, the OC may still be civilly liable for any accident caused by the works, if the court finds that they are responsible for the accident. Therefore, the OC should remove any unauthorised building works in the building to prevent any liabilities from arising.
How much should be insured?
The minimum insured amount must be $10 million per event.
Notice to owners
After the OC has procured third party risk insurance, the insurance company should issue a notice of insurance stating the particulars of the policy to the owners.
The OC must also display the notice of insurance in a prominent place in the building as long as the policy is in effect, to notify the owners of the insurance.
Notice to Land Registry
Within 28 days after the insurance policy takes effect, the OC must give notice to the Land Registrar. The notice should include
- the name and address of the insurance company
- the period covered by the insurance policy
What should the OC do if a third party makes a claim against them?
If a third party had suffered from a bodily injury or a death, they may seek compensation against the OC. Within 10 day of receiving the party’s written request, the OC must state whether it is insured in respect of that claim and give particulars of the policy. The insurance company shall pay compensation to the third party up to the policy amount.
The insurance company is required to pay compensation, if the claim is one that is required to be covered by a policy under the Regulation (e.g. common parts of the building), even if the policy is restricted by the insurance company because of the following reasons:
- 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.
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 they pay compensation to the third party.
If the third party makes a claim against an OC, but the OC does not have third party risk insurance, it still has to make full compensation. If the OC does not have sufficient funds to pay compensation and has to be wound up, each individual owner becomes personally liable for the compensation. If the individual owners are unable to pay compensation, they may be forced into bankruptcy. Therefore, it is very important for the OC to purchase third party insurance.
Key takeaways
- Third-party risks insurance covers liability that may incur in relation to common areas of the building in respect of a third parties’ injury or death
- The Owners Corporation is in charge of purchasing such insurance
Bibliography
- Home Affairs Department: “ Building Management (Third Party Risks Insurance) Regulation”: https://www.buildingmgt.gov.hk/file_manager/en/documents/insu_09_eng.pdf
