Fidelity Cover Explained: What It Is, Why It Matters, and How to Protect Your Body Corporate

Managing the finances of a sectional title scheme or Homeowners Association (HOA) comes with a host of responsibilities — and risks. One of the most critical, yet often misunderstood, protections every community scheme needs is Fidelity Cover. Without it, schemes are exposed to devastating financial losses and trustees themselves could be held personally liable.

In this article, we’ll unpack exactly what Fidelity Insurance Cover is, how it works, why every Body Corporate must have it, and what to look for when choosing the best insurance policy for your scheme. We’ll also show you how the right partner — like Specialised Broker Services (SBS) — can ensure your cover stays compliant, updated, and ready for any eventuality.

What Is Fidelity Cover?

Fidelity Cover is an insurance policy specifically designed to protect the financial assets of a community scheme — such as a sectional title complex or Homeowners Association — against loss caused by fraudulent or dishonest acts. In plain terms: if a trustee, managing agent, employee, or anyone with access to the scheme’s money steals or misappropriates funds, Fidelity Cover reimburses the community for the loss.

How It Differs from Other Insurance

While Sectional Title Insurance typically covers physical damage to buildings and common property, and Body Corporate Insurance covers liability risks (like injuries on common property), Fidelity Cover focuses on financial theft and fraud. It’s a vital layer of protection that addresses one of the most damaging, but less visible, risks a community faces.

For a comprehensive overview of the various insurance types and common sectional title risks faced by community schemes, explore our related article:  Common Claims in Sectional Title Insurance, and How to Avoid Them.

How Fidelity Insurance Cover Works in Practice

To truly appreciate the value of Fidelity Cover, it helps to imagine scenarios where having (or not having) this protection could make a critical difference.

Scenario 1: The Trusted Treasurer Turns Rogue

Imagine a sectional title complex where the treasurer — a long-standing, well-liked owner-trustee — begins quietly siphoning off funds. Over a couple of years, large sums of money disappears from the scheme’s accounts. If the Body Corporate had Fidelity Cover in place, the stolen funds could be recovered through an insurance claim, saving owners from bearing the loss themselves. Without such cover, the community would likely be forced to impose a hefty special levy on owners to replace the missing money.

Scenario 2: Managing Agent Commits Fraud

Picture a Homeowners Association that relies heavily on its managing agent to handle financial transactions. Over time, the agent redirects levy payments into their personal account, escaping detection for several months. With Fidelity Cover in place, the HOA could recover the misappropriated funds and even fund the legal costs of pursuing the dishonest agent. Without Fidelity Insurance, owners would face financial strain, possible service disruptions, and reputational damage.

Scenario 3: No Cover, No Safety Net

Consider a sectional title body corporate that neglects to maintain valid Fidelity Cover. When R300,000 in reserve funds vanishes under suspicious circumstances, the body corporate finds itself with no recourse through insurance. Trustees are held personally liable for the shortfall, and owners must endure significant special levies to rebuild the lost reserves — all while trust in the scheme’s management is badly damaged.

Understanding the Trustee’s Role and Legal Duties

Trustees play a vital fiduciary role in protecting scheme assets. Under South African law — specifically the Sectional Titles Schemes Management Act (STSMA) and the Community Schemes Ombud Service Act (CSOSA) — trustees have a legal duty to ensure that Fidelity Cover is:

• In place at all times.
• For the correct amount, reflecting the scheme’s total funds and reserves.
• Renewed and adjusted annually based on updated financials.

Failure to maintain Fidelity Insurance Cover as legally required can expose trustees to liability for financial shortfalls — and leave owners at risk of special levies or delayed operations.

Compliance Requirements

The law requires that Fidelity Cover must insure at least:

• The total amount of the community scheme’s investments and reserve funds at the end of its most recent financial year, plus
• 25% of its current operational budget.

Simply put: trustees cannot afford to guess or assume — Fidelity Cover must be properly calculated and actively managed.

Why Body Corporate Insurance Needs To Include Fidelity Cover

Sectional title and HOA schemes typically manage hundreds of thousands to millions of rands in levy income and reserves. This financial responsibility creates inherent risks, no matter how honest or diligent trustees and managing agents seem.

Without Fidelity Insurance, your scheme faces:

• Massive financial loss: Misappropriated funds could stall maintenance, repairs, or critical upgrades.
• Forced special levies: Owners might be asked to immediately contribute large amounts to cover missing funds.
• Legal battles and reputational damage: Fraud incidents damage trust among owners and can spark years of costly litigation.
• Trustee liability: Trustees may be personally sued for failing to maintain adequate insurance cover.

Ultimately, Body Corporate and Homeowners Association Insurance — including mandatory Fidelity Cover under sectional title insurance requirements — is not just about ticking a compliance box; it’s about safeguarding owners’ investments and ensuring the long-term financial stability of the scheme.

How to Choose the Best Fidelity Cover

Not all Fidelity Insurance policies are equal. Here’s what trustees, managing agents, and investors should look for when selecting the right protection for their scheme:

Full Compliance with Legal Minimums

Ensure the policy insures:

• Total investments and reserves (last financial year)
• Plus 25% of the current levy budget

Partial or incorrectly calculated cover could still leave the scheme (and trustees) exposed.

Wide Coverage of All Relevant Parties

The policy should specifically cover:

• Trustees
• Managing agents and their staff
• Employees and contractors handling scheme funds

Some insurance policies exclude contractors or limit cover to full-time employees — always check.

No Onerous Conditions That Could Invalidate Claims

Look out for hidden conditions such as:

• Mandatory annual audits
• Dual signatory rules
• Immediate notification of suspected fraud

Work with a specialised insurance broker, such as SBS, who understands how to structure the fidelity insurance policy so you stay compliant without unrealistic demands.

Annual Reviews and Updates

Because levy budgets and reserves change annually, Fidelity Cover must be reviewed each year to avoid underinsurance. Learn more about common insurance mistakes and prevention strategies in our article: Common Claims in Sectional Title Insurance, and How to Avoid Them.

How Specialised Broker ServicesCan Help

At Specialised Broker Services (SBS), we act as trusted advisors, helping community schemes navigate the complexities of Fidelity Cover and sectional title insurance requirements. As part of our consultative approach, we assist clients by:

Advising on the importance of annual Fidelity Cover reviews to support compliance with the Sectional Titles Schemes Management Act (STSMA) and the Community Schemes Ombud Service Act (CSOSA).

Providing guidance on structuring appropriate insurance policies that reflect the risks faced by trustees, managing agents, and others with access to scheme funds.

Highlighting the need for ongoing reviews to adapt cover as financial circumstances change.

Offering insights into claims processes to help clients respond effectively if fraud or theft occurs.

Our extensive experience in Sectional Title Insurance, Body Corporate Insurance, and Homeowners Association Insurance positions us as knowledgeable partners in safeguarding the financial health and compliance of community schemes.

Protect Your Sectional Title Community

As a trustee, managing agent, or property investor, protecting your sectional title community scheme’s financial health is one of your greatest responsibilities. Fidelity Cover is not just a legal requirement — it’s your first line of defence against fraud, theft, and the devastating consequences that can follow.

Don’t risk non-compliance or financial loss.

Partner with the experts at Specialised Broker Services (SBS) to assess your current Fidelity Insurance Cover, identify any gaps, and build a robust, legally compliant solution tailored to your scheme’s unique needs.

Contact SBS today for a no-obligation Fidelity Cover audit and enjoy peace of mind knowing your community’s financial future is secure.