After a major fire, or a burst pipe that floods several floors, the biggest problem in the first few days is not the walls but daily life: where the family will sleep, who will take away the fallen plaster and the burnt-out furniture, who pays for the mandatory demolition, and what happens to the rent on a let flat, which the tenant understandably stops paying. In such situations residents expect everything from the building's policy – after all, ‘the building is insured’. The building's insurance, however, settles the damage to the building; the other items – salvage, demolition, debris, temporary housing – belong to a separate chapter on cost reimbursements, with their own conditions and their own limits, while lost rent is typically not included at all in Hungarian condominium policy conditions. This article goes through the additional costs of a major loss: what the building's policy provides, what the resident's own home insurance provides, and what is left for the owner to bear. How the basic cover works is described in the article on fire and natural-peril losses; here we look at the questions that lead on from there.
- The building's policy covers the reinstatement of the building; firefighting, salvage, demolition and the clearing of rubble and debris fall under a separate chapter on cost reimbursements, typically within the sum insured or with a separate limit – this varies from one set of conditions to another.
- The rent for temporary accommodation is primarily paid by an add-on to the resident's own home insurance; some condominium policy conditions also cover it, but Hungarian conditions typically make this subject to proof of an official declaration that the home is uninhabitable, proof of the rent, and a limit.
- Lost rent and lost profit are consequential losses: Hungarian condominium policy conditions typically exclude them, and a landlord owner can look for such cover – if anywhere – in their own contract.
The building's policy: the building and the cost reimbursements
Condominium property insurance pays the cost of reinstating the insured parts of the building after fire, explosion, escape of water from pipes and the other insured events, within the sum insured and the policy conditions. A major loss, however, typically costs more than the reinstatement itself, so Hungarian policy conditions also provide cost reimbursements in a separate chapter: typically for firefighting and salvage, emergency measures, demolition, clearing and removing rubble and debris, erecting a temporary roof and, under several sets of conditions, design costs and the costs of official permits as well. One Hungarian condominium policy, for example, lists among the documents required for claims settlement ‘proof of the costs of emergency measures (firefighting, salvage, demolition, clearing and removal of rubble and debris, erecting a temporary roof), and of design and official permit costs’; another covers the necessary costs of mitigating the damage within the sum insured or the reinstatement sum. The indemnity insurance rules of the Hungarian Civil Code (Ptk.) point in the same direction: the necessary and reasonable costs of mitigating the damage are borne by the insurer within the sum insured. What matters in practice: these costs do not automatically come on top of the reinstatement amount; depending on the conditions, they are paid either within the sum insured or up to a specified percentage of it – this can be read from the policy's cost-reimbursement table, and in an underinsured building the cost reimbursement may also be reduced proportionately. Every item needs an invoice and a justification: emergency measures can be carried out even before the inspection, but take photos and keep the invoices.
Temporary housing: the resident's own contract comes first
Housing the family temporarily is a matter for the resident's own home insurance: Hungarian home insurance policies typically cover the rent for temporary accommodation and the cost of moving, as an add-on or as part of the package, if the home has become uninhabitable because of an insured event – subject to a time limit and a monetary limit. The building's policy can help out here, but not in place of it: some condominium policy conditions also pay the owner of a unit that has become uninhabitable the rent for temporary accommodation and the cost of moving. One Hungarian condominium policy covers this up to a maximum of one per cent of the sum insured, or, for a contract based on reinstatement value, up to an amount set per unit, and makes it subject to a decision by the competent authority declaring the home uninhabitable; another requires, for claims settlement, the authority's certificate declaring the property uninhabitable and proof of the rent paid for the temporary accommodation – in practice, a written tenancy agreement and proof of payment. Weeks spent with relatives, a hotel bill or a favour from friends typically do not fit into this. Whether your policy includes such an item can be read from the cost-reimbursement table and from the definition of ‘insured’: on the building's policy, the insured persons are typically the co-owners; a tenant is covered only if the conditions also include the lawful users of the flats – there is a Hungarian condominium policy that treats the users of the flats as insured for their own contents – so for a let flat it is worth checking who is insured under the policy. If the tenant is not included, housing them is the task of neither the building's insurance nor the owner's home insurance, but the tenant's own affair, which their own tenant's insurance may cover. How the payment is made – whether the insurer transfers it to the building or to the resident – is described in the article on who receives the payout.
Demolition, debris, official requirements
Demolition can be of two kinds. Emergency demolition – propping up a floor slab that threatens to collapse, removing a burnt-out roof structure – is damage mitigation, and under the conditions it is one of the cost reimbursements. Demolition ordered by the authorities and the associated removal of rubble and debris are also among the typical cost-reimbursement items, as is the landfill fee, but here too the limit depends on the conditions. A separate question is the additional cost caused by official requirements: if, during reinstatement, the authority requires a more modern structure, fire safety or structural solution than the existing one, the conditions either cover the extra cost up to a separate limit or they do not – this varies from insurer to insurer, and with a major loss this item can be a substantial sum. The same goes for design and permit fees: where the conditions name them, they are reimbursed against an invoice; where they do not, they are charged to the common fund. After reporting the claim, it is therefore worth the condominium manager (közös képviselő) agreeing in writing with the insurer which costs it will accept, and up to what amount, before reaching an agreement with the contractor – the loss assessment process is described in the article on loss assessment.
Lost rent: what is typically left out
For the owner of a let flat, the months during which it is uninhabitable bring a double loss: the tenant does not pay, and no new tenant will move in until the reinstatement is finished. Under the tenancy rules of the Ptk., no rent is due for the period during which the tenant cannot use the flat for a reason outside the tenant's sphere of control – so the tenant is within their rights not to pay. In insurance terms, however, lost rent is a consequential loss, a loss of profit, and Hungarian condominium policy conditions typically exclude it; one of the policy wordings cited simply states that the insurer does not pay for consequential losses. So do not expect this from the building's policy: the community's insurance exists for the sake of the common building, not the income of individual owners. What remains: some home insurance policies offer loss-of-rent cover as a landlord's add-on, but this varies from insurer to insurer and is rarer than one might think; the tenant of a ground-floor shop may consider business interruption cover of their own. Where the building's policy and the resident's own contract part ways is summarised in the article on how the two types of insurance relate.
What should the resident and the condominium manager do after a major loss?
In the first few days, the order is: safety and emergency measures, photos of every room before demolition, then reporting the claims on the insurers' claims lines – the manager for the building's policy, the owner for the flat's policy. Ask the authority for a certificate stating that the flat is uninhabitable: this document is the gateway to reimbursement of temporary housing, and it is harder to obtain after the fact. Pay for the temporary rental under a written agreement and by bank transfer, and send the agreement to the insurer in advance. Have the demolition and the removal of debris carried out by a contractor who issues invoices, and keep all the invoices in one place. The manager should draw up a list: which item is charged to which policy, and what is covered by neither – and share the latter honestly with the residents before the general meeting decides on the owners' own contribution. If the case gets stuck – the insurer disputes whether the costs were justified, or the limit – I act on behalf of the manager or the owner and help where I can; the claim, however, starts on the insurer's claims line and proceeds there.
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Sources
- Colonnade Atlasz condominium insurance – policy conditions and customer information – documents required for claims settlement: proof of emergency, demolition and rubble/debris clearance costs, official certificate declaring the home uninhabitable, proof of rent for temporary accommodation
- Aegon (Alfa) Praktika condominium and housing cooperative insurance policy wording – XI. 2.3.1–2.3.4 cost reimbursements (firefighting, salvage, rubble and debris clearance, damage mitigation, rent for temporary accommodation), XIII exclusion of consequential losses
- Hungarian Civil Code (Ptk., Act V of 2013) – indemnity insurance: costs of damage mitigation; tenancy: no rent is due while use of the property is excluded
