When considering a subrogated recovery against a lot owner in a NSW strata scheme, one of the first issues strata insurers should consider is section 170 of the Strata Schemes Management Act 2015 (NSW).
Section 170 significantly limits an insurer’s ability to pursue a lot owner after indemnifying an owners corporation. Where an insurer accepts a claim made by an owners corporation for loss based on an act or omission of a lot owner, the insurer has no right of subrogation against that lot owner unless the act or omission is proven to have been wilful.
In practical terms, this means that negligence alone will generally not be enough. Even where a lot owner’s conduct has caused substantial damage, an insurer’s recovery rights are likely to be barred unless there is evidence capable of establishing wilful conduct.
This reflects the purpose of strata insurance. Building insurance is arranged by the owners corporation for the benefit of the strata scheme as a whole, including individual lot owners. If insurers were able to routinely pursue lot owners for accidental or negligent damage to insured property, it would undermine the collective protection that strata insurance is intended to provide.
Practical considerations
Before commencing recovery proceedings against a lot owner, insurers should carefully consider:
- whether the claim was made and accepted on behalf of the owners corporation;
- whether the damage falls within the property insured under the strata policy; and
- whether there is evidence capable of establishing wilful conduct, rather than negligence or mere inadvertence.
In many cases, the available evidence may establish negligence but fall short of the higher threshold required to prove wilfulness. Identifying this issue at an early stage can avoid pursuing recovery claims that have little prospect of success.
It is also important to note that section 170 does not prevent an owners corporation from directly pursuing a lot owner for uninsured losses where there is a legal basis for doing so. The statutory restriction applies specifically to an insurer’s subrogated rights.
Comparison with other jurisdictions
NSW is not alone in adopting this approach, although the position is not consistent across Australia.
Tasmania has a similar statutory provision. Section 99(6) of the Strata Titles Act 1998 (Tas) likewise prevents an insurer from exercising subrogated rights against a lot owner after accepting a body corporate’s claim unless the relevant act or omission was wilful.
By contrast, many other Australian jurisdictions do not contain an equivalent statutory restriction. Instead, they address liability and recovery through different legislative mechanisms, including provisions that permit owners corporations or bodies corporate to recover certain costs or expenses from lot owners or occupiers in specified circumstances.
