Fidelity Insurance and Section 3(1)(k) Cover: Why It's Non-Negotiable
Fidelity insurance protects owners against theft or misappropriation of body corporate funds. Here's what the STSM Act requires and why every scheme needs adequate cover.
PPSP Team
Professional Property Solutions Provider
Body corporates handle significant sums of other people's money – levies, reserve funds, and special levy collections. Fidelity insurance is the safety net that protects owners if any of that money is stolen or misappropriated.
What the Act Requires
Section 3(1)(k) of the Sectional Titles Schemes Management Act requires the body corporate to take out and maintain fidelity insurance cover against loss caused by theft or fraud committed by trustees, managing agents, or any other person handling scheme funds. This is a statutory duty, not an optional extra.
What Fidelity Insurance Actually Covers
- Theft by trustees or employees: Losses caused by dishonest conduct of anyone with access to body corporate funds
- Misappropriation by the managing agent: Cover extends to funds handled on the scheme's behalf by an appointed agent
- Fraudulent transactions: Losses from forged signatures, fraudulent instructions, or manipulated records
How Much Cover Is Enough
Cover should reflect the value of funds the body corporate is realistically exposed to at any point in time – typically calculated with reference to the scheme's annual levy income plus reserve fund balances. Under-insuring fidelity cover is a common oversight that can leave owners badly exposed after even a modest fraud.
When to Review Fidelity Cover
- Every year at budget and insurance renewal time
- After any significant increase in reserve fund balances
- Whenever signing authority or banking arrangements change
- After onboarding a new managing agent
Separating Fidelity Cover From Building Insurance
Fidelity insurance is entirely separate from the scheme's building or public liability insurance. A common misconception is that a comprehensive sectional title insurance policy automatically includes adequate fidelity cover – trustees should confirm the fidelity limit explicitly, not assume it's bundled at an adequate level.
Protecting the Money Owners Trust You With
Fidelity insurance is one of those compliance requirements that's easy to overlook until it's needed – at which point it's the only thing standing between owners and a real financial loss.
Not Sure If Your Scheme Is Adequately Covered?
PPSP reviews fidelity insurance cover as part of our annual compliance check for every scheme we manage.
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