Building or renovating a house

The level of cover provided by home warranty insurance policies is set out in ministerial orders.

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

Typically, home warranty insurance 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.

Domestic building insurance is insurance of last resort. It can only be claimed if the builder has died, gone bankrupt, or disappears. For policies issued after 1 July 2015, the policy will pay a claim if the builder fails to comply with a final order from the Victorian Civil and Administrative Tribunal (VCAT) or a court. Any appeal periods must have expired. The policy limit is $300 000.

In most cases, the insurance policy will not assist owners and they will need to deal with the builder. 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.

Cover for completion costs is capped at 20 per cent of the contract price. Also, legal costs and expenses are included in the policy limit. Therefore, cover could be eroded by legal costs.

A consumer must make a claim within 180 days of the date when they 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 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 Chapter 10.4: 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.

Home warranty insurance is not required for high-rise residential buildings that provide more than three storeys of residential accommodation.

Consumers can search the database to 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 on VMIA’s website.

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

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.