Raise the roof

A fundamental obligation on the trustees of a school charity is to safeguard the property of the charity. A key part of that will involve arranging sufficient insurance cover. Jon Taylor reports on Charity Commission guidance

The Charity Commission for England and Wales provides information on the classes of insurance available to charity trustees (Guidance Note CC49) and the factors that trustees should consider when considering insurance.

Trustees are empowered by The Trustee Act 2000 to insure the trust’s property and pay the premium from charitable funds. Where the charity is a company, the memorandum of association will usually allow payment of premiums for property insurance from charitable funds. There may also be a requirement that the trustees purchase appropriate insurance.

The Charity Commissioners recommend that trustees insure buildings for their full reinstatement value where the charity is the freehold owner and insurance has not been made the responsibility of a tenant or lessee (this should be given proper consideration when a lease is drawn up). Where insurance has been made the responsibility of the lessee, the trustees must ensure that this is in place for the appropriate level of cover. The sum insured should represent the cost of rebuilding the property but should also make allowance for demolition work, site clearance and professional fees.

Get it right
Why is it so important to get the sum insured right? Most commercial insurance policies will contain a “condition of average”, which will apply in the event of the sum insured proving inadequate. The condition of average has the effect of reducing a claim settlement in line with the level of under-insurance. For example, if a building is insured for only 50 per cent of the correct reinstatement cost, only 50 per cent of the cost of the claim will be met by insurers. The trustees may be liable to make good the shortfall from their own pockets. How is the reinstatement sum insured reached?

The Charity Commissioners recommend that advice is obtained from a professionally qualified building surveyor. Usually this will involve a valuation survey that is carried out at a cost to the charity based on the valuation of the building. There are, however, insurers and brokers in the sector that will provide a valuation at no charge to the insured. Many charities will own and/or occupy listed properties and, in these circumstances, it is important to employ the services of a surveyor experienced in the valuation of such buildings. In doing so, trustees should be able to take comfort from the fact that the requirement of planning authorities, for example, to reinstate in the same style or materials, will have been taken into account.

The provision of a professional valuation by the insurer and acceptance by the insured of the recommended figure has the added advantage that the insurer will waive the condition of average if the sum insured ultimately proves to be inadequate. This removes the risk of under-insurance and the potential liability of trustees to which this gives rise. Similarly, where the insurance broker provides a valuation service, the condition of average will be waived by the insurer where the valuation is accepted and the broker has reached agreement with insurers to do so.

Annual appraisal
The Charity Commissioners suggest that building sums insured are adjusted annually for inflation and should be checked every three to four years to confirm that the figure remains adequate.

While it is not always possible to say that a school can be fully covered for every eventuality, there are steps to ensure that a building’s insurance claim is met in full. Ensure that the amount for which the building is insured is adequate, based on the recommendation of an experienced surveyor, and a waiver of the condition of average is secured on the strength of the valuation.

Jon Taylor is head of sales and marketing of the specialist education practice at Marsh Brokers Limited. Jon can be contacted on jon.taylor@marshbrokers.com.

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