Certificates of Insurance

Certificates of Insurance

Introduction

A licensed builder is required under the Home Building Act 1989 to obtain insurance through icare builders warranty for a residential building project to be undertaken on behalf of a developer. Insurance should be in place before commencing work on the project and before taking any money, including a deposit under the building contract.

The Act also provides that a developer must not enter into a contract for the sale of land on which residential building work has been done (within 6 years of completion of the work), or is to be done, on the developer’s behalf unless a Certificate of Insurance is attached to the contract of sale. Certain circumstances, such as NEW high-rise construction and sale off-the-plan, may be exempt.
  
The requirement for insurance to be in place for most residential building work is also a standard condition of a Development Consent under the Environmental Planning and Assessment Act 1979. If the conditions of the Development Consent are not complied with an Occupation Certificate may not be able to be issued for the work.
 
Important: NSW Fair Trading advises on its website that if a developer contracts two or more parties to do work on the same building project, the developer is supervising and co-ordinating the work; this means they are taken to be undertaking residential building work under the title of 'builder' and take on responsibility for this role. Fair Trading also advises that the developer who does building work or co-ordinates other contractors who are doing the work becomes subject to the provisions of the Home Building Act 1989 as a 'spec' builder.  
 
Information on the requirements to obtain a builder's licence, exemptions from the insurance requirements and any rights of a purchaser to cancel a contract before settlement if the Certificate of Insurance is not attached by the developer to the contract of sale, may be obtained at www.fairtrading.nsw.gov.au.

Applying for a Certificate of Insurance

A builder requiring a Certificate of Insurance for a building project to be undertaken on behalf of a developer and having first obtained Eligibility for insurance can apply through their broker who will submit the application to the builder’s previously nominated insurance agent.
  
Details of each Insurance Agent’s authorised brokers and intermediaries are available on the websites of each of the Insurance Agents:
There are two forms for making application for a Certificate of Insurance:
Generally, for work being undertaken on behalf a developer a builder will use the form for multiple dwelling projects. 

Project Application

The application form contains a checklist of all the information builders will need to provide with their application.
  
The builder’s insurance Distributor (broker) will submit the application form to the Insurance Agent for assessment, unless the broker has the authority to undertake the assessment itself (i.e. binding intermediary).
 
In considering an application for a project certificate for work to be undertaken by a builder on behalf of a developer an Insurance Agent's underwriter is required to critically assess the technical and managerial skills of the builder to undertake such work. Some issues that may require detailed consideration include:
  • The scope of works for the project
  • Proof of funding for the project
  • The extent of the builder's experience in undertaking similar projects
  • The terms of the contract  
Where a development has a contract value of over $750,000 the developer (in addition to the builder) must demonstrate their financial capacity to be involved in multi-dwelling construction projects. A developer may demonstrate their financial capacity by being a well-established developer (i.e. not a special purpose vehicle) which has net tangible assets (adjusted) of at least 10% of the contract price or proposed value of the project.
 
Where a developer is unable to demonstrate their financial capacity they may be required to provide suitable security (e.g. a related party undertaking). 
  
The Underwriting Guidelines contain further information on specific underwriting considerations applying to work on behalf of developers as well as the the following:
  • Multi-unit and high value constructions (over $1million)
  • Rectification work on multi-unit buildings
  • Project management contracts

Where a project is outside a builder’s eligibility profile or is assessed as a higher risk this may result in the application for a Certificate of Insurance being declined or special conditions being attached to the issue of the Certificate (e.g. request for increased equity or security or engaging a BCRP service provider).

Making a complaint

If a builder is not satisfied with the way their application for a Certificate of Insurance has been assessed, they can, in the first instance, through their broker request a review by the Insurance Agent. If the matter is not resolved, the builder can then request that it be escalated to the Insurance Agent’s underwriting committee and potentially to the icare builders warranty's underwriting committee.