Builders Warranty Insurance – Home Owner Making a Claim Effect of the Builder Failing to Pay an Amount Ordered by a Court or NCAT

02/11/2021

Watson & Watson act on behalf of many Owners or Owner/Builders in relation to their rights and obligations under the Home Building Act 1989 (NSW).

The Home Building Act (amongst other things) sets out requirements in relation residential building works including requirements for Contracting, Licencing and other matters including the insurance requirements and resolving building disputes and building claims.

Part 6 of the Home Building Act relates to various insurance requirements including the obligations for Contract Work to be insured including Section 92 and Section 96 insurance in relation to residential building work carried out and Section 96A obligations of Developers in relation to insurance. 

The Contractor is required to provide Builder’s Warranty Insurance (also referred to previously as Home Owners Warranty Insurance) which complies with Division 3 Insurance Contracts and Premiums.  We refer to our article 9 April 2018

The requirements for insurance are to insure a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the Contractor in relation to:

1. Non-completion of the work;
2. To rectify a breach of statutory warranties in respect of the work; and
3. To recover compensation for such breach of statutory warranties.

The Home Building Act provides for:

1. Timely notification of possible claims under the Builders Warranty Insurance.
2. That the Home Owner takes action to enforce the claims against the Builder or Developer.
3. In the event that there is a “triggering event” the making of a claim on the Home Owners Warranty Insurer.

The Notification of Claim is required and is separate from the actual claim which can only be made after there is a “triggering event” which allows the claim to be made.

In addition, a Contract of Insurance in relation to residential building work required by Sections 92 or 96 of the Home Building Act must include a provision that deems the suspension of the Contractor’s licence under Section 42A to constitute insolvency of the Contractor for the purposes of an Application to the insurer for the loss as a consequence of the Contractor failing to satisfy an Order made against the Contractor.

Section 42 provides for automatic suspension of the licence for failure of the holder of a licence to comply with an Order to pay money in relation to a building claim. 

In those circumstances, if you have obtained an Order of the Court or the NSW Civil and Administrative Tribunal (NCAT) and the holder of the licence fails to comply with an Order to pay an “amount of money in respect of a building claim by the due date”, the licence is [subject to Section 42(A)] suspended until such time as the Secretary is satisfied that the Order has been complied with. 

The suspension of the licences takes effect 28 days after the due date for payment (subject to any stay of that Order).  However there are provisions allowing the Secretary to defer or stay automatic suspension on particular grounds.  Subject to any deferral of the suspension, there are numerous avenues available to an Owner to make a claim on the insurance resulting from failure to complete the work because of the insolvency, death or disappearance of the Contractor.

The insolvency, death or disappearance of the Contractor allows all separate Owners who have suffered loss, to make a claim on the insurance whereas the deemed insolvency issue allows the Owner who has not received the payment as ordered, to make a claim on the insurer.

If you are proposing to undertake construction of your home and are unsure of the Contractor’s obligations in relation to Builder’s Warranty Insurance or you have commenced construction of your home and there is a triggering event or possible claim against the Contractor or there are issues relating to the Builder’s Warranty Insurance, our Senior Building and Construction Solicitors can provide advice and assist in this process.  Please contact Richard Watson Accredited Specialist stream of Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate timely advice.

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