Insurance: Building or renovating a house

 

Changes to home warranty insurance has limited cover and is available only if the builder is dead, insolvent or has disappeared. Cover for the completion cost is capped. The Victorian Managed Insurance Authority has assumed responsibility for the scheme in Victoria. Consumers should check their builder has public liability insurance.

Home warranty insurance

Home warranty insurance was first introduced in 1996. The level of cover provided by these policies is set out in Ministerial Orders. The most recent ministerial order is Government Gazette no. S98 of 23 May 2003. Unfortunately, the 2003 ministerial order reduced the level of cover provided by these policies.

Home warranty insurance is only required if the contract price is more than $16,000 (previously $12,000). Accordingly, a large amount of minor work will not carry home warranty insurance.

Typically the policies cover:

defective building work (including breach of the implied warranties);

non-completion of work;

loss of deposit or progress payment;

alternative accommodation; and

breaches by the builder of the ACL&FTA.

Structural defects are normally covered for six years, non-structural claims must be made within two years.

A major limitation of the 2003 Ministerial Order is that cover is only available if the builder is dead, insolvent, or has disappeared. This represents a major impediment to consumers seeking to claim under the policy. Owners need to be aware that in most cases the insurance policy will not assist them and they will need to deal with the builder when work is found to be defective. If the builder does not satisfactorily address the owner’s concerns, it may mean lengthy and expensive legal proceedings against the builder.

Home warranty insurance is presently underwritten by the Victorian Managed Insurance Authority (VMIA) (see www.vmia.vic.gov.au or 1300 363 424). This insurance is managed by QBE Insurance Australia.

Cover for completion costs is capped at 20% of the contract price. Another important limitation is that legal costs and expenses are included in the policy limit. There is a real danger that cover will be eroded by legal costs.

A consumer must make a claim within 180 days of the date when the consumer first became aware, or might reasonably be expected to become aware, of the circumstance giving rise to a claim. If an insurer declines a claim, any appeal must be brought within 28 days at the Victorian Civil and Administrative Tribunal (VCAT).

An insurer must make a decision on a claim within 90 days, failing which the claim is deemed to have been accepted by the insurer.

Section 54 of the Insurance Contracts Act 1984 (Cth) should assist consumers who notify defects outside of the policy period, provided that the defects were detected within the policy period (see Insurance). It is important that you read the home warranty insurance policy carefully. Not all defects are covered. In all instances your first contact should be the builder. You may need to negotiate with the builder to get them to return and repair defects.

For policies issued after 1 July 2015, important changes have been introduced. The policy limit has been increased to $300,000 (formerly $200,000). The new policies will pay claims if the builder has failed to comply with a VCAT or court order. If you have an order, it is no longer necessary to wait for the builder to die, disappear or become insolvent. The order must be a final order and any appeal periods must have expired.

From 1 July 2015, a consumer can search/confirm that their builder is eligible for insurance (but only if the builder has agreed to be included in the search database). The status of policies issued after this date can be checked through the VMIA website.

Owner-builders are not required to carry home warranty insurance unless they sell their home within 6.5 years of the date of the occupancy permit. At that time they must apply for insurance and this requires an inspection report by a registered building inspector.

Other insurance

Consumers should insist that their builder is covered by contract works and public liability insurance. This insurance normally covers damage to the works (e.g. by fire), liability to others such as neighbours arising during the work, and injury to others arising from the works. Consumers should check these policies to ensure they are named or included in the coverage provided by the policies.