VIC: Do We Really Need Mechanical Breakdown Insurance?

This article is about mechanical breakdown insurance for a strata scheme in Victoria.

Table of Contents:

• QUESTION: Our insurance policy includes mechanical breakdown insurance. Can I claim the replacement of my reverse cycle air conditioner under mechanical breakdown?
• QUESTION: Our Owners Corporation Manager said we needed mechanical breakdown insurance in our policy to cover our garage doors. Is this correct?
• QUESTION: Although we don’t have any lifts or elevators just an electronic gate, we have been told we need mechanical breakdown insurance as part of our policy renewal.

Question: Our insurance policy includes mechanical breakdown insurance. Can I claim the replacement of my reverse cycle air conditioner under mechanical breakdown?

I own a townhouse in an owners corporation. When reading the building insurance policy, I note we have mechanical breakdown insurance.

Does this type of insurance cover the reverse cycle air conditioners in each of our townhouses?

My reverse cycle air conditioner recently broke down. It can’t be repaired and needs replacing. A new air conditioner will cost $3k, including supply and installation. Would this be covered under the mechanical breakdown insurance if I agree to pay the excess?

Answer: It depends on the reason for the breakdown.

As the property is not in Queensland, the air conditioner is considered part of the building under the strata insurance.

Does the machinery breakdown section of the policy cover your air conditioner? It depends on the reason for the breakdown.

As an example, the CHU policy wording does not cover the below causes under machinery breakdown:

Wear and tear or the wearing away or wasting of material caused by or naturally resulting from atmospheric conditions, rust, erosion, corrosion, oxidation or ordinary use.

The breakdown policy is not designed to cover items that have broken down simply because the air conditioner has reached the end of its life and needs replacing. Maintenance is an obligation of the owner.

In addition to cover under the machinery breakdown section of the policy also extends to provide cover in the property section for events not associated with a “breakdown”, for example, fire.

If you have a claim, we recommend you obtain a report indicating the cause of the breakdown. If it is not due to wear and tear or other maintenance exclusions, submit the claim to your strata insurer for consideration.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 1300 554 165

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the April 2023 edition of The VIC Strata Magazine.

Question: Our Owners Corporation Manager said we needed mechanical breakdown insurance in our policy to cover our garage doors. Is this correct?

Our Owners Corporation Manager said that we had to include mechanical breakdown insurance in our policy to cover garage doors. Each unit has one garage door for personal use. The Air conditioner is also personal use. We have no lifts as we are just a group of townhouses.

Answer: There isn’t a requirement to insure for breakdown.

There isn’t a requirement to insure for breakdown. I really recommend clients consider breakdown when they’ve got lifts, central air conditioning units, high cost, machinery around maintenance of a pool, so pool pumps and so on, and garage doors as well, but not necessarily for garage doors that simply service one lot.

You have to remember that breakdown covers just that. It covers the breakdown of that item. A breakdown is something that normally happens over time, and I guess, can be due to wear. It would be fair and reasonable that owners wear that expense as opposed to the Owners Corporation, insuring for those things.

That being said, it would fall to a decision of the committee as to whether they did or didn’t want to insure the garage doors for breakdown. Personally, if I was on the committee and that was the only breakdown item, I would probably see that we didn’t insure for breakdown if the expense didn’t justify it.

Some insurers will insure breakdown for $100. In that instance, I’d probably take the cover out, but then others might be $1,500 to $2,000 and you’d have to question whether the garage motor and the excess would make it worth claiming for that.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 07 3899 5129

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the June 2021 edition of The VIC Strata Magazine.

Question: Although we don’t have any lifts or elevators just an electronic gate, we have been told we need mechanical breakdown insurance as part of our policy renewal.

We are a set of townhouses in Victoria and our Owners Corporation Manager told us one year we did not need mechanical breakdown insurance and the next year said we needed $60,000 coverage which means an increase in premium – thus more OCM commission.

As we are individual townhouses, we only have an electronic gate. We have no lifts or escalators so we cannot see why we need this mechanical breakdown insurance in our insurance policy. The electronic gates motor was recently replaced at $2000 and is under a service contract.

We have garage doors and split air conditioners attached to each individual unit – which we believe would be lot owners expense.

We contacted our insurance company but were told to talk to the OCM so we would appreciate some independent advice.

Answer: The decision to take out certain cover lies with the owners corporation, not the Owners Corporation Manager.

Firstly, keep in mind that your OCM is the owners’ corporations agent and the committee may instruct them to take certain action, not the other way around.

Insurers do prefer to receive requests from OCMs as they need to make sure the request is legitimate and not just from one committee member. As the OCM generally has the authority to make changes such as including mechanical breakdown insurance, the insurer can accept their instruction much more readily.

This doesn’t mean committee members cannot phone the insurer to ask questions, however.

The decision to take out certain cover such as mechanical breakdown insurance lies with the owners corporation.

If the owners corporation does not see it as a necessary cover, they can instruct the OCM to have the insurer remove it.

Most major policies include an amount of cover for the fusion of small electric motors without the need to purchase machinery breakdown cover. Many schemes that do not have significant machinery rely on this benefit to provide some protection for the fusion of small motors contained in gates and air-conditioners.

It certainly pays to have a read of this benefit and the mechanical breakdown insurance cover to determine which one is suitable for your scheme.

If you are still unsure after reading, professional advice can be sought. To avoid a conflict of interest, have a look for a fixed fee broker. This will avoid the financial conflict a commission-based broker may have.

Simon Plummer
StrataRatings
E: [email protected]

This post appears in Strata News #243.

Have a question about mechanical breakdown insurance or something to add to the article? Leave a comment below.

Please note that the above is not intended to provide advice of any type and merely discusses the issues raised broadly. Professional assistance should be sought should you require advice.

Read next:

• Owners Corporation Insurance Requirements Victoria
• VIC: Q&A Individual Strata Insurance for a Small Owners Corporation

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