Insurance Policies

Type of policies

The Home Building Act 1989 requires that builders and developers provide homeowners (including owner-builders) with a Certificate of Insurance as evidence that a Contract of Insurance (i.e. policy) under the HBCF is in place for residential building work.
 
From 15 January 2015 an owner-builder is no longer required to obtain insurance when selling a property on which owner-builder work has been undertaken. Owner-builders who enter into contracts with licensed contractors are covered under insurance certificates provided by those contractors. 
 
The policy wording for Contracts of Insurance issued by Insurance Agents on behalf of the HBCF covering work performed by licensed builders and previously by owner-builders can be accessed via the following links: 
 

For Certificates of Insurance issued between 1 July 2010 and 31 January 2012 (inclusive)

For Certificates of Insurance issued from 1 February 2012 onwards

For Certificates of Insurance issued from 15 January 2015

For further information regarding the requirements for the provision of Certificates of Insurance to homeowners please refer to the page on Information for Homeowners in this website.   

Insurance Cover

Residential building work

The policy provides cover for the person on whose behalf the work is to be done (and a successor in title) for:
  • loss or damage resulting from non-completion of the work because of the insolvency, death or disappearance of the builder or where the builder's licence has been suspended under the Home Building Act for failure to comply with a compensation (money) order of the NSW Civil & Administrative Tribunal (NCAT) or a court in favour of the homeowner; and
  • loss or damage resulting from a breach of a statutory warranty (e.g. defective work) because of the insolvency, death or disappearance of the builder or where the builder's licence has been suspended under the Home Building Act for failure to comply with a compensation (money) order of the NCAT or a court in favour of the homeowner.
The policy will also provide cover for the following loss and damage because of the insolvency, death or disappearance of the builder or where the builder's licence has been suspended under the Home Building Act for failure to comply with a compensation (money) order of the NCAT or a court in favour of the homeowner:
  • loss or damage resulting from faulty design, where the design was provided by the builder;
  • loss or damage because of early termination of the contract because of the builder's wronful failure or refusal to complete work;
  • the cost of alternative accommodation, removal and storage costs reasonably and necessarily incurred because of non completion of the work or breach of a statutory warranty;
  • the loss of of a deposit or progress payment; and
  • legal or other reasonable costs incurred in seeking to recover compensation from the builder.    

Owner-Builder work

The policy provides cover for the purchaser of land on which owner-builder work has been done (and a successor in title) for:
  • loss or damage resulting from a breach of a statutory warranty (e.g. defective work) because of the insolvency, death or disappearance of the owner-builder.
The policy will also provide cover for the following loss and damage because of the insolvency, death or disappearance of the owner-builder:
  • loss or damage resulting from faulty design, where the design was provided by the owner-builder;
  • the cost of alternative accommodation, removal and storage costs reasonably and necessarily incurred because of a breach of a statutory warranty; and
  • legal or other reasonable costs incurred in seeking to recover compensation from the owner-builder.   

Amount of Cover

Policies issued from 1 February 2012 provide cover up to a maximum amount of $340,000 (policies issued between 1 July 2010 and 31 January 2012 provide cover up to a maximum amount of $300,000).
 
In the case of work such as repairs, maintenance, renovations etc. carried out to the common property of an existing residential flat building (i.e. a building containing two or more dwellings) the cover provided from 1 February 2012 is calculated as follows:
  • where the value of the work is more than $20,000 and the amount (obtained by dividing the value of the work by the number of dwellings in the building) does not exceed $20,000, the policy provides cover up to a maximum total of $340,000;
  • if the amount (obtained by dividing the value of the work by the number of dwellings) is more than $20,000, the policy provides cover up to a maximum amount of $340,000 for each dwelling in the building.

For example:

  • cost of work is $32,000 ÷ 8 units = $4,000, therefore $340,000 cover is provided for the job;
  • cost of work is $320,000 ÷ 8 units = $40,000, therefore $340,000 cover is provided for each dwelling.

Period of Insurance (Cover)

Non-completion
The policy for residential building work provides cover for a period of 12 months after the failure to commence or cessation of the work.
 
Structural defects
The policies for residential building work and owner-builder work  provide cover for loss or damage arising from a structural defect for a period of six years after the completion of the work.
 
Other loss and damage
The policies for residential building work and owner-builder work provide cover for loss or damage arising from other than a structural defect (e.g. a non structural defect) for a period of two years after the completion of the work. 
 
For the purposes of determining the period of cover provided by an insurance policy for residential building work, completion of work occurs on the date that the work is complete within the meaning of the contract under which the work was done.  
 
If the contract does not provide for when the work is complete (or there is no contract), the completion of the work occurs on practical completion. This is when the work is completed except for any omissions or defects that do not prevent the work from being reasonably capable of being used for its intended purpose. It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of the residential building work occurred on the earliest of whichever of the following dates can be established for the work:
  • the date on which the builder handed over possession of the work to the homeowner;
  • the date on which the builder last attended the site to carry out work (other than work to remedy any defect that does not affect practical completion); or
  • the date of issue of an occupation certificate for the work under the Environmental Planning and Assessment Act 1979.

For the purposes of determining the period of cover provided by a policy for owner-builder work the work is taken to be completed on practical completion. It is to be presumed (unless an earlier date for practical completion can be established) that practical completion of owner-builder work occurred on the earliest of whichever of the following dates can be established for the work:

  • the date of issue of an occupation certificate for the work under the Environmental Planning and Assessment Act,  or
  • the date 18 months after the issue of an owner-builder permit for the work. 

Limitations on Cover

There are some limitations on the cover provided under a home warranty insurance policy including:
  • the claimant is required to meet the first $250 of each claim made under policies issued from 1 February 2012 and $500 under policies issued between 1 July 2010 and 31 January 2012;
  • the amount of cover provided for claims for loss or damage arising from non-completion of work is limited to 20% of the contract price (including variations); 
  • the amount of a deposit that exceeds the maximum payment pemitted under the Home Building Act 1989 is not covered by the policy;
  • the amount of a progress payment that exceeds the amount specified under the building contract is not covered by the policy. 

Loss and Damage NOT Covered by the Policy

A policy does not provide cover for:
  • liquidated damages for delay (other than increases in rectification costs);
  • a failure by the homeowner to maintain appropriate protection against pest infestation or exposure of natural timbers;
  • consequential loss including loss of rent or other income, loss of business opportunity, inconvenience or distress;
  • a malfunction in any mechanical or electrical equipment or appliance where it is proved that the malfunction is not as a result of the workmanship or installation by the builder or owner-builder;
  • loss or damage as a result of fair wear and tear of the work or from the homeowner's failure to maintain the work;
  • a structural element in a non residential part of a building unless the defect or damage adversely affects the structure of, or access to, the residential part of the building;
  • damage caused by the normal drying out of work (if the builder or owner-builder has taken all reasonable precautions to allow for the drying out);
  • a claim outside of the manufacturer's warranty period for (or if there is no warranty period outside the reasonable lifetime of) an appliance or apparatus (e.g. dishwasher, air conditioning unit); 
  • a claim for damage to work or materials that is outside the reasonable lifetime of the work or materials or the manufacturer's warranty period for the materials;
  • a defect due to a faulty design provided by the homeowner;
  • a claim in relation to any defect that is referred to in any report on the owner-builder work required by the HBCF to be obtained before the policy was issued.

A policy does not cover a claim by the developer and/or the builder (including a related corporation) or the owner-builder. 

Requirement to enforce a statutory warranty

A homeowner must take action to try to have the builder (or owner-builder) finish any incomplete work and rectify any defective building work. Where a homeowner does not take action to enforce a statutory warranty the HBCF may reduce its liability (or the amount paid under a claim), to the extent that its interests have been prejudiced as a result of the homeowner not trying to have the builder (or owner-builder) complete or repair the work.
 
Examples of where a homeowner might be considered to have taken steps to enforce a statutory warranty would include where the homeowner lodges a complaint about the builder with NSW Fair Trading, lodges a building claim with the policy and/or commences court proceedings to try to have the builder (or owner-builder) finish any incomplete work or rectify any defective work. 

Claims conditions

For information regarding the periods for notifying a loss and/or lodging a claim under an insurance policy or please refer to the page on Claims in this 'Homeowners' section of the website. 

Terms

Many of the terms contained in the insurance policies for residential building work and owner-builder work have special meanings (e.g. insolvency, statutory warranty, structural defect etc). Reference should be made to the relevant section of the policy wording for the meaning of the terms. 

References on this website to builders and building work include and apply to work undertaken by trade contractors and other building contractors such as electricians, plumbers, carpenters, swimming pool builders etc.