Builders Warranty Insurance – Home Owners Warranty Insurance making a Claim - Residential Building in NSW

09/04/2018

An Owner will either engage a qualified Builder to carry out the work or may obtain a Home Owners Building Permit.  This article relates to matters other than work undertaken by the Home Owner directly and in particular with a Home Owner Building Permit. 

Firstly if an Owner wishes to carry out residential building work the Home Building Act 1989 sets out requirements (when the cost of the work is above the threshold) in relation to licencing of the Builder, the requirements for a Contract to be in writing and the requirement for various insurances.  Care should always be taken by the Home Owner to check the requirements and to ensure the proposed Builder is properly licenced and insured.  Similarly it is also critical to consider the terms of the Building Contract. 

Our experienced Lawyers at Watson & Watson can assist in this regard.  The Home Building Act provides for the requirements as to insurance in relation to the Builders Warranty Insurance previously known as Home Owners Warranty Insurance.  In this article we will refer to this insurance as either the Home Owners Warranty Insurance or Builders Warranty Insurance.

The Home Building Act (Section 92) provides that a person must not do residential building work unless there is appropriate insurance as specified namely Builders Warranty Insurance that covers the work.  This insurance is a “last resort insurance” and covers the Home Owner in relation to losses relating to defective or incomplete work by the Builder.  However the insurance is not triggered unless the Builder is insolvent, dead or has disappeared (as it is applied in accordance with the provisions of the Home Building Act).

Unless one of these events has occurred the usual practice is that a claim must first be made against the Builder. 

There are also requirements relating to notification of possible claims on the Insurer who provided the Home Owners Warranty Insurance.

The Builder’s Warranty Insurance required under the Home Building Act (Section 99) insures the person on behalf of the work done against risk resulting because of the insolvency, death or disappearance of the Builder:

(a)      for non-completion of the work; or

(b)      to rectify a breach of statutory warranties in respect of the work; or

(c)      to recover compensation for such breach of statutory warranties.

The Home Owners Warranty Insurance to be provided is for a period of cover as provided for under the Home Building Act (Section 108B) which is not less than:

(a)      In the case of a loss arising from a major defect (within the meaning of Section 18E) the period of 6 years after completion of the work; or

(b)      In the case of any other loss the period of 2 years after completion of the work. 

Section 103B provides that the Home Owners Warranty Insurance entered into after July 2002 provides insurance cover in respect of loss only if the claim in respect of the loss is made to the Insurer during the period of insurance.  There are exceptions to this general rule. 

If a loss becomes apparent in the last 6 months of the period of insurance referred to above there is an extended claim period which permits a claim in respect of the loss to be made within 6 months after the loss becomes apparent.

There is no extended claim period in relation to a loss that arises from non-completion of work or arises from a breach of statutory warrant that is insured by a construction period insurance contract.

If the loss becomes apparent during the period of insurance but a claim cannot be made during the period because the triggering event for the claim has not occurred, a claim can be made after the period of insurance as a delayed claim (Section 103BB3) but only if:

(a)      the loss was properly notified to the Insurer during the period of insurance or within the 6 months after the loss became apparent in the case of the loss becoming apparent in the last 6 months of the period of insurance; and

(b)      the beneficiary under the Contract of Insurance making the claim diligently pursues the enforcement of the statutory warranty concerned after the loss became apparent. 

This is critical to keep the claim alive.  The claim must be pursued diligently.

It is crucial that the loss and possible claim is properly notified to the Insurer in accordance with the requirements of the Home Building Act (Section 103BB6). 

The regulations set out the requirements which constitute diligent enforcement of the statutory warranties.   It is critical that one pursues the claim for example, against the Builder and takes all other relevant steps expeditiously once first becoming aware of the breach.  Those duties are not limited to but include:

(a)      (Duty under Section 18BA of the Act when the breach becomes apparent)

The person makes reasonable efforts to ensure that notice is given to the person against whom the statutory warranty can be enforced within 6 months after the breach; and

(b)      Even if you give to the Insurer Notification of a possible claim and prosecute the claim against the appropriate entity (for example the Builder) the claim cannot be made unless made within 10 years after the work was completed.

(c)      The person who has the benefit of the statutory warranty has a duty to allow reasonable access to the person responsible to rectify the breach; and

(d)      The person with the benefit of the statutory warranty has a duty to mitigate their loss.

There are critical obligations of notification and to pursue the claim against the person whom one has the claim against.

Separately to the obligations under (Section 103BA – 103BC) of the Act the beneficiary under the Insurance Contract should give a notification of loss with appropriate particulars:

(a)      Not later than 6 months after the beneficiary first becomes aware or ought to reasonably become aware of the fact or circumstances under which the claim arises.

(b)      In the case that may give rise to a claim for loss or damage resulting from incomplete work not later than 12 months after the later of:

          i.         The Contract date; or

          ii.        The date provided in the Contract for commencement of work; or

          iii.       The date work ceased. 

If such a notice is given (Regulation 47) the Insurer may not reduce its liability under the Contract.  The Regulation does not set out what occurs if the notice has not been given, however in light of the Regulation which protects the Beneficiary from a claim by the insurer to reduce the amount payable such notice should be given.  If the notice is not given then the Insurer may seek to reduce the claim on one basis or another.

Even though the Home Owners Warranty Insurance or Builders’ Warranty Insurance is the “last resort insurance” there can be adverse effects if appropriate notification is not given to each of the Contractor or person responsible to undertake the works (which may include other parties such as a Developer or Sub-Contractor as well as the Contractor) and appropriate notice should be given to the Insurer within 6 months of becoming aware of the breach giving rise to a claim.

Do not delay if you find yourself in circumstances where you become aware of breaches which may give rise to a possible claim.  Please contact Watson & Watson experienced Building & Construction Solicitors by contacting Richard Watson Accredited Specialist Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your concerns.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.