WhopAySthE ExCESS?


These days it is accepted that an insurance policy will carry an excess which is sometimes referred to as a deductible


This is thecontributionthe policyholder has to paytowards anyclaim before the insurerpaysthe balance. Commonly, different levels of excesswillapply to different types of losses


Who should pay the excess andwhy?


Thestartingpoint is thelease;somemodern leases specify howexcesses are to be dealt with –whichis usually done by including themunderthe servicechargeaccount. Older leases, on the other hand, areunlikely to specificallydictate howinsurance excessesare to be handledas,when they were drafted, excesseswere less common.


So, youmay ask,why have excesses become common place? The answer is that they are ameans of reducing the premium. Initially, smallexcesseswereimposed on insurance policies to eliminatesmall claimswhere the cost of administering the claimcould be greaterthantheamount of thelossbeing claimed for.More recently, however, larger insurance excesses have become away of reducing thepremium;and thelargerthe excess becomes, the more contentious an issue it becomes andthe morelikelythiswill be legally challenged bymeans of an appeal to the Leasehold ValuationTribunal (LVT).


Assuming your leaseissilentonthe subject, youwillhavetoconsiderwhether youpay it viathe servicechargeaccount. Butifyou do,thenyou need to be awarethatthe LVT mayruleagainst you. If theclaim relates to common parts, or affectsmultiple flats, it couldbeassumedthatthiswould be considered ageneralmaintenanceissueand as such,the excesssimplycan be added to the service charge account.


18 Flat Living GUIDETO INSURANCE


With escape of water, on the other hand, it is usuallythe flatowner underneath theflatwherethe wateroriginatedthat suffers damage andwilloften be theparty making theclaim.Whilst,morally,the flat owner belowmay feel that it is the fault of the flat owner above, the challenge is in establishing strict liability in lawand for most claims this is not easily possible. For example,aflat ownerwho accidentally overfills abathwould probably notbe considered negligentbyacourt of law unless it couldbeprovedthatthiswas not the first timethey had done so.


TheLVT have generallyallowed forexcesses to be claimed underthe servicecharge accountbut this is notalwaysthe case, so this is a grey area.


It is commonly accepted that insurance excessesareameans bywhichinsurance premiums canbereduced butthe difficult debateiswhether they form part of the insurancecostsinthe eyes of thelease.


Electing for, or having averylarge excess can cause problems for owners looking to sell theirproperty. Thesolicitor acting for a prospective purchaser is bound, by the CouncilofMortgageLenders’handbook, to refertoamortgagelenderifthe insurance excesscontributionfrom anyone flatis greater then £1,000.Where this is the case, amortgagelendermay refuse to lendwhich could reduce the market value of a flat.


If your leaseissilentonthe subjectof excessesyou arelucky enough to have the advantage to choose between a higher excess and lower premiumor lower excess and higher premium– the choice is yours!


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