Home Warranty Insurance

Essentially home warranty insurance is required for residential building work including the supply of a kit home where the value of the work exceeds $12,000. Previously minimum cover was stipulated at $200,000 but from 1^st March 2007 this was increased to $300,000. Cover in excess of this limit can be negotiated at any of the approved insurance companies in New South Wales. Home warranty insurance must be obtained by the builder and a certificate given to the home owner prior to taking any money under the contract and before commencing any work for supplying a kit home. Any tradesperson who is carrying out residential building work where the value exceeds $1,000 is required to hold the appropriate licence from the Office of Fair Trading. It should be noted that where the value of the works exceeds $12,000 they also need to obtain home warranty insurance from an approved insurer. 

Although any home owner may take comfort from the fact that their licensed builder has provided them with a certificate of home warranty insurance they should not forget that this policy does not extend to include defects and only covers the death, disappearance or insolvency of the builder. In other words all defects claims are to be met directly by the builder whereas previously they fell to be met by the insurer issuing the home warranty insurance. There are a number of traps and pitfalls with home building contracts and home warranty insurance. Essentially a home warranty policy is a hybrid liability product which is limited by the following:-

• basis of insuring clause
• conditions precedent and conditions subsequent
• nature, limits and extent of cover

Remember, overpayments are not compensable under home warranty policy. Claims for incomplete work are limited to 20% of the contract price up to the maximum specified by the policy. The policy covers non-structural defects for a period of two years and structural defects for a period of six years from completion of the works. Claims for incomplete work are only covered for up to 12 months following the failure of the builder to commence or after ceasing work. All claims should be notified to the approved insurer within six months of the date the claimant first became reasonably aware of the circumstances giving rise to the claim. Whether the policy does or does not respond the importance of the home building contract should not be overlooked. There are a number of forms around none of which are perfect. Essentially these contracts are drafted to protect the builder rather than the home owner and may have very harsh consequences for them where these documents are executed without first seeking independent legal advice. Every time we are approached by a disappointed home owner who is experiencing problems with their builder before executing a building contract they all say they wish they had obtained independent legal advice before they had done so as they never realised how exposed they were and the only reason for doing so was they didn’t want to spend any money on legal fees as they couldn’t see the value in it at the time. 

Unfortunately it is commonplace for the cost of construction to blow out by over a third of the original contract price for a variety of reasons including the performance of the builder leaving the home owner exposed to increased costs which are exceedingly unwelcome in the vast majority of cases. Essentially these claims break down into claims for: breach of statutory warranty; breach of contract; faulty design and the Trade Practises Act matters in some circumstances.

Although claims are governed by home building regulations the process is not a user-friendly one as it provides the insurer with a 90-day period within which to determine liability and provided they have applied for an extension of time before the 90-day period lapses this is further extended before they are deemed to have accepted liability. The 90-day period only starts to run from the time the home owner provides the insurer with the prescribed claims information which means that 90 days may be the minimum period within which the insurer has to determine liability. This is made even more interesting when you consider that stand-alone defects claims are no longer included as the policy only responds to faulty and incomplete work where the contractor dies or disappears or becomes insolvent. 

Many home building disputes in NSW under the Home Building Act 2004 find their way to the Consumer Trader and Tenancy Tribunal as all intermediate steps have proved disappointing to say the least. Generally speaking it is best for the home owner to try to resolve the matter with the builder wherever possible particularly where the amount in dispute is less than $25,000. Sometimes there is fault on both sides and a negotiated settlement is the best outcome given the circumstances. Where either party has become unreasonable then you should seek competent legal representation to resolve the matter. Whatever your circumstances please do not hesitate to contact LAC Lawyers on 1300 799 888 to arrange an appointment.