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Third party insurance
Many Hong Kong citizens may have heard of the Court case involving the building Albert House. In 1994, a concrete canopy on the external wall of Albert House collapsed, killing one person and injuring seven. The Incorporated Owners of Albert House were found to be liable and had to pay substantial damages. Unfortunately, the Incorporated Owners were not covered by third party liability insurance. This eventually led to the winding-up of the Incorporated Owners, which meant that each individual owner of a flat in Albert House had to contribute to the damages according to his/her respective share in the building.
This case highlights the importance of third party insurance in relation to the maintenance of the common parts of buildings. The Hong Kong Government subsequently imposed a mandatory duty on all owners’ corporations to keep in force an insurance policy in respect of third party risks in relation to the common parts of the building and property of the corporation.
Under this mandatory scheme:
- An owners’ corporation “shall procure and keep in force in relation to the common parts of the building and the property of the corporation, such policy of insurance with an insurance company in respect of third party risks” (section 28(1) of the Building Management Ordinance (Chapter 344 of the Laws of Hong Kong));
- This policy “is required to insure the assured corporation in respect of any liability that may be incurred by the assured corporation in respect of the death of, or the bodily injury to, any person” (section 3 of the Building Management (Third Party Risks Insurance) Regulation (Chapter 344B of the Laws of Hong Kong));
- The policy must “provide insurance of not less than $10 million in respect of any prescribed liability that may be incurred in respect of the death, or the bodily injury, or both, arising out of one event” (section 4 of the Building Management (Third Party Risks Insurance) Regulation(Chapter 344B of the Laws of Hong Kong));
- If there is a failure to effect or maintain such insurance, every member of the management committee of an owners’ corporation is guilty of an offence unless he proves that “the offence was committed without his consent or connivance”, and that he had “exercised all such due diligence to prevent the commission of the offence as he ought to have exercised in the circumstances” (section 28(2) of the Building Management Ordinance (Chapter 344 of the Laws of Hong Kong)); and
- If there is a failure to effect or maintain such insurance, “every member of the management committee shall be guilty of an offence and shall be liable on conviction to a fine”; the amount of which can be up to $50,000 (section 28(2) of the Building Management Ordinance (Chapter 344 of the Laws of Hong Kong)).
While the duty to obtain and maintain adequate insurance appears to lie only with the members of the management committee of an owners’ corporation, individual flat owners should be aware that they will, in the end, be liable as co-owners of the whole building or estate.