Flat owners at risk from neighbours' lack of cover

Their concerns are leading to calls to "regularise" the current system, which has been described as a "hotchpotch of a muddle", to prevent flat owners being left high and dry when catastrophe strikes.

The most serious problems arise with older flats, typical of the centre of Edinburgh and Glasgow. Although arrangements can vary from building to building, most commonly each individual owner is responsible for insuring "the building" element of his own apartment.

However, owners do so without any guarantee that their neighbours are responsibly buying any cover for their share of the property. If the building burns down and not all the owners have insurance, the claim can soon grind to a halt.

Ronnie McCaul, of Edinburgh brokers EH Ranson, said: "We have had some very bad fires in the city in recent years, which have damaged a large number of properties. If even one of those flats was not insured, it can cause enormous problems and delay repairs."

For this reason, many insurers will only issue protection if the cover they grant insures the rebuilding costs of the entire block or tenement. The premiums they charge for providing the full rebuilding costs can be eye-watering, particularly if the property is listed or has special historical or architectural features.

In such a case, someone with a one-bedroom flat could end up paying a premium designed to cover the 1 million rebuild costs of the entire building. And so could his neighbour. The insurance industry could end up pocketing premiums covering the same building six times over as each resident arranges their own individual cover.

McCaul added: "One of the problems we see is that most of the insurance companies are based in England, and do not understand the way the Scottish flat system works. They are used to insuring all the building, and expect to do so with each individual application in Scotland. But that is not necessary, and flat owners should not pay it."

Ian Crowder, of the AA, agreed that some insurers are reluctant to insure Scottish flats unless they protect the entire building. He said: "Some are reluctant to insure flats individually because of uncertainty regarding responsibility for shared areas and difficulties resolving claims that impact on all flats within the block, such as subsidence."

Colin Connor, underwriting manager for Aviva, added: "The premiums can often be higher because the claims process can be more protracted and expensive, involving negotiations with a range of different insurers."

Worries that your building might catch fire, without adequate insurance, are indeed the stuff of nightmares. But your property being damaged because of the activities of owners above or below is far more common, and can also be very distressing.

A typical incident might involve the apartment above letting the bath overrun, bringing down your ceiling. Bad enough in itself, but infuriating when you discover your neighbours have no insurance. Alternatively, renovations to flats above or below, particularly if walls are moved, could cause settlement, leading to cracks in your property.

In theory, most flat owners should have insurance if buying their property with a mortgage, because the lender requires its investment to be protected via adequate buildings cover.

However, owners are no longer required to buy cover from the lender, and can opt out provided they arrange insurance privately. Although initially the lender checks that protection is in place, it may not pick up if the policy subsequently lapses because premiums go unpaid. In that case your neighbour may be without cover, and you will be potentially exposed.

Similarly, there is no way to check whether empty properties, or those owned without a mortgage, or by private landlords and trusts, have adequate insurance in place.

Catherine Taylor, of HBJ Gateley Wareing, warned: "All too often, the innocent victim of a claim ends up paying for the damage themselves, through their insurers, because whoever caused the problem doesn't have cover.

"This means inevitably their premiums will go up, and often substantially, through no fault of their own.

"This whole area is a minefield which badly needs regularising. It is always the innocent party who gets hit."

Ranson agreed that non-insurance by even one party can lead to enormous headaches.

He said: "A flat owner doesn't just own his flat, but he owns part of the roof and the common areas. If there is damage to any of these, say the roof, then he is liable for his share of the repair. If even one of those responsible has no cover everything stops."

Aviva, formerly Norwich Union, does offer policies for individual flats, and Connor said if a building burned down it might be possible for the insurers involved to see that the property was rebuilt, even if not all residents were fully covered.

Connor, based in Perth, said: "The insurers which were involved would do everything they could to make sure their policyholder was not left disadvantaged. Although we would each only have any responsibility for meeting a percentage share of the claim, we might look at liability to find more money.

"For example, if it could be proved that the fire was caused because a cooker was left on under an unattended frying pan in one flat, then it might be possible to put more of the rebuild cost onto that insurer, to get round the problem of underinsurance."

McCaul was sceptical: "Certainly the insurers would get together and see what they can do. But if some of the properties aren't insured, it is a serious stumbling block."

The situation with new flats is more straightforward. Most blocks appoint a factor or managing agent, who requires every owner within the block to buy buildings cover. This is often done via a block policy with one particular insurer.

But owners are not necessarily any happier with these arrangements. In some blocks owners have become very disillusioned with their factors as the prices of premiums have soared.

The best option is for owners to get together and form an association which then buys a single group policy for the building.

Failure to collect premiums left Paul exposed

INVESTMENT analyst Paul McMillan admits he has no idea what the insurance arrangements of his neighbours are, and that thought does worry him.

He lives in a former council block of six flats in Stenhouse, where the council remains the landlord of four, and a private landlord owns another of the apartments.

Each owner is responsible for arranging their own building and contents cover, and he has already learnt first-hand how insurance doesn't always run smoothly. Gremlins can and do get in, which could potentially leave other owners exposed.

Paul said: "I didn't have a problem getting insurance. I arranged a mortgage via a broker, and he suggested Select and Protect, which I signed up with. But after a few months I noticed that they had stopped collecting the premiums. I contacted them and they apologised and said it was a mistake, but not to worry, my cover was intact.

"The point is, though, they had not spotted the error, and I only noticed because I do sit down regularly and go through my bank statements. What happens if I hadn't noticed?"

Paul would welcome some "regularising" of the situation, so that flat owner-occupiers can be confident that their investment in the property is safe.

However, he isn't convinced that appointing a factor is the best way forward. He said: "My girlfriend has a factor at her flat who arranges the insurance. But the residents seem to have no control over how much they are forced to pay."

How to stay safe

Try to persuade your fellow owners to buy a group policy together.

Do not buy the cheapest policy you can find over the internet. It is unlikely to provide the kind of cover you need.

Get professional advice on what your rebuild costs should be. If you have a mortgage, your valuation should have included a rebuild estimate by the surveyor.

Make sure you disclose all pertinent information to the insurer, particularly if the property is listed.

Consider drawing up an association with your fellow residents to stipulate rules, such as compulsory insurance.