Insurance policies on property, says Tony Clarke, Managing Director of the Rawson Property Group, usually include clauses which reduce the compensation for which they are responsible, if and when a force majeure takes place in the insured property’s area – and this is understandable because weather catastrophes like the recent Hurricane Sandy on the East Coast of the USA have the potential to bankrupt an insurance group.
Flood insurance, adds Clarke, can be especially tricky if the home is sited in a known 50 or 100 year flood plain – as, for example, many of those washed away in the Laingsburg floods of 1981 were. Today most municipal regulations are stringent about allowing building in flood plains, but, he says, the fact remains that many hundreds of South African homes are in such areas.
When this is the case, Clarke points out that:
1. It is the seller’s duty to draw the attention of the buyer to this, and
2. Almost all insurance policies specifically exclude major flood damage. A special, probably expensive, extra policy will have to be applied for- and this can be expensive.
“Any buyer of a property that might be at risk due to natural disasters should seriously consider whether he can afford the extra insurance to cover these or, alternatively, whether his home is constructed to withstand them.”
“I remember well,” says Clarke, “that when the river leading into the Knysna Lagoon flooded, as it is prone to do every five to ten years, certain of the ground floors of homes were badly wrecked, while others, having allowed for possibility of a flood, were able simply to do clean-up and to move back into their homes within a day or two of the flooding. Such homes, of course, would not need the extra insurance.”
The relevant legislation here, says Clarke, is based on the concept of “supervening impossibility”, i.e. disasters of a type or size that the promisor had no reason to anticipate. If suchrisks were included in the contracts, their whole basis would become insecure and they are, therefore, usually deliberately excluded.
The storms, floods and other ‘Acts of God’ experienced in KwaZulu Natal, the Eastern Cape and to a lesser extent in the Western Cape over the last few years have reached extreme levels on occasion and, says Clarke, the Rawson Property Group has had to field numerous enquiries as to how insurance companies are legally contracted to respond to these cases.
“In general,” says Clarke, “major ‘Acts of God’ become the responsibility of the state, with the insurance company possibly helping out in a small way. The big question always asked, however, is who is responsible for the repair of a property damaged, i.e. by an incident that could not have been anticipated or allowed for - when this occurs after a sale but before transfer and occupation have taken place.”
If and when a disaster hits an area and the buyer has already signed a legal sales document,South African law indicates that the buyer is not expected to move forward with the sale and to take transfer the property until it has been fully reinstated by the seller to the condition it was in when the sale document was signed.
“If the seller cannot do this within a satisfactory time period, the courts are obliged to allow the buyer to cancel the sale, provided, of course, that up to that point he too has met his obligations.”
If, as is usually the case, adds Clarke, the seller has a bond on the property, the banks will probably have insisted that he takes out comprehensive insurance, including structural insurance, on the building. This, it might be thought, would kick in when a flood or similar disaster occurs, but, for the reasons mentioned, that can by no means be assumed. It is, therefore, he says, essential that home owners check their policies and take out additional insurance against these disasters.
