Home Warranty insurance

• Home Warranty Insurance Scheme is mandatory under the Home Building Act 1989 for residential building work over $12, 000
• Safeguards home owners in respect to defective and incomplete building work and is compulsory.
• Home Warranty Insurance from 1 July 2002 shields consumers if the owner-builder, contractor of developer becomes "insolvent, dies or disappears."
• Policies from 19 May 2009: If the contractor's licence is suspended from neglecting to fulfil compensation to the home owner from direction of the Consumer, Trader and Tenancy Tribunal than the home owner can make a claim.

HOME WARRANTY INSURANCE IS NEEDED WHEN:

• Contract price or work/material is over $12,000. (You cannot split contracts to avoid HOW.)
• Specialist work (electrical and plumbing work) always requires a licence.
• A builder must provide insurance prior to undertaking any work or taking any money from a home owner under a residential building contract.
• An owner builder must provide insurance prior to selling the property if they have undertaken works in the past six years.
• A developer must provide insurance prior to selling the property if they have a builder doing or has completed works.
• Kit home provider must supply insurance prior to accepting money.

MINIMUM COVER

• 1 May 1997- 28 February 2007: Policies must give cover of $200,000.
• From 1 March 2007: Policies must give cover of $300,000.
• Cover may be subject to limitations stipulated in the policy; particularly regarding excess payment and progress payments.
• Insurance claims for incomplete work are restricted to 20% of the contract cost. A policy issued between1 May 1997- 28 February 2007 a maximum of $200,000 and for a policy issued after 1 March 2007 a maximum of $300,000.

EXEMPTION: MULTI-STOREY BUILDINGS

• Home Warranty Insurance Cover is not required to be in place for construction of a new multi-storey residential building.
• Multi-storey building: has a elevation of more than three storeys or contains two or more separate dwellings.

NOT EXEMPTED: MULTI-UNITS

• Home Warranty Insurance is required to be in place for construction of a new multi-unit residential development.
• Developer needs to attach certificate to contract for sale.
• Multi-storey unit: the elevation is three storeys or less: (eg. Town houses, villas.)

COUNCIL REQUIREMENTS

• Needs to be advised by the builder of the project being undertaken.
• If Home Warranty Insurance is not acquired than the Council/Principal Certifying Authority may not be able to provide an Occupation Certificate.

CLAIM

• A home owner can lodge a claim in the occurrence of financial loss or damage as a consequence of a builder, owner-builder, tradesperson, or developer failing to finish or start work and/or neglecting to rectify defective work and where the home owner has not been able to recover financial loss nor have the works been corrected or completed.
• The home owner must act by initiating dispute resolution by lodging a complaint with the Office of Fair Trading to attempt to have the builder rectify or complete any works.
• Where the owner does not take this action to enforce the warranty than the insurer may decrease its liability or the amount paid under the claim.

POLICIES AND COVER

• Cover is given for loss emerging from the non-completion of work for up to 12 months after the failure to start or termination of work.
• Policies prior to 1 July 2002: cover is granted for seven years from when the work was completed or the conclusion of contract for the work for loss arising from work.
• Policies after 1 July 2002: cover for all losses including non-completion, is afforded in the event of death, disappearance of builder, owner-builder, developer or tradesperson.
• Cover for loss arising from defective work is for six years from when the work was finished or the conclusion of contract for the work for loss arising from a structural defect or two years for loss emerging otherwise from structural defect.
• The policy must indemnify beneficiaries under the policy for the subsequent losses or damages:

I. Breach of statutory warranty

II. Faulty design provided by contractor or supplier

III. Cost of alternative accommodation, removal and storage costs reasonably and necessarily incurred

IV. Loss of deposit or progress payment

V. Materials and components used in kit home not good or suitable for purpose.

VI. Faulty design or non supply of kit home

VII. Non-completion of work due to early termination of the building contract (because of the contractor's or supplier's failure or refusal to complete the work).

VIII. Legal or other reasonable costs incurred in seeling to recover compensation form the contractor or supplier for the loss or damage or the taking of action to rectify the loss or damage.

• If the beneficiary for the loss of a deposit that surpasses the amount stipulated under legislation the policy will not cover it.
• The policy will not cover the loss of the progress payment that surpasses the figure stipulated under the building contract for payment.
• Policies from 1 May 1997- 28 February 2007: Claims for unfinished works are restricted to 20% of the contract amount up to $200,000.
• Policies from 1 March 2007: Claims for unfinished works are restricted to 20% of the contract amount up to $300,000.
  NOTIFICATION AND TAKING ACTION
• The owner needs to first notify the insurer of a loss and then take action and lodge a formal claim with supporting documentation at a later date.
• Notification of loss
• To ensure that future rights are protected under the home warranty insurance policy when the owner becomes aware of the defective or unfinished work, they need to inform the insurer in writing.
• When the owner has given the notice, according to the legislation, the owner has given notice of every defect which is directly or indirectly related to it.
• For defective work, notification should normally occur within six months of owner becoming aware of it within the period of cover. If knowledge about the defect becomes apparent in last six months of the cover, than within six months of that time.
• For incomplete work, notification should occur within twelve months of the contract date, the date provided regarding the commencement or the date the work was discontinued.
• Notification denotes that insurer cannot reduce its liability.
• However, a loss resulting from defective work can still be informed to the Insurer at any time within the period of cover.
• The home owner must act by initiating dispute resolution by lodging a complaint with the Office of Fair Trading to attempt to have the builder rectify or complete any works.

LODGING A CLAIM

It is helpful to attach copies of supporting documents to the formal claim letter which comprise of: HOW Insurance Certificate, signed contract with contractor, documentation showing variations, independent reports detailing defects, costs estimations of repairs, photographs and correspondence in support of claim.

IF YOU CANNOT LOCATE THE BUILDER

• If there are incomplete or defective building works than the owner should lodge a complaint with the Office of Fair Trading.
• The Office of Fair Trading will supply the owner with a letter, if they cannot locate the builder, and the letter can be submitted to the owner's insurer with a claim.
• The letter is evidence of that the owner has endeavoured to try and locate the builder and will not be obliged to make any further investigations.
• However, the letter will not ensure that the insurer will approve the claim.
• The insurer must determine the claim, 45 or 90 days after they receive all the claim information.

REJECTED OR DISPUTED INSURANCE CLAIMS

• The home owner can appeal a decision and bring a claim against the insurer to Consumer, Trader and Tenancy Tribunal.
• If the sum that the insurer approved is regarded as inadequate or if the claim is rejected it, the owner may appeal.
• Appeals must be put forward within 45 days of written notification by the insurer.
• The CTTT has a $500, 000 limit on orders that can be made regarding residential building work.
• Appeals regarding private home warranty insurance cover can be made for up to 10years from the completion of the work.

AMOUNT OF TIME FOR AN INSURER TO DETERMINE CLAIM

• Policies issued up until 31 August 2005: Decision must be made within 45 days, if it has not been made, than the insurance claim is assumed to have been refused. An appeal to the CTTT can be made after this time.
• Policies issued from 1 September 2005: Decision is taken to be made within 90 days after the home owner has provided all claim information. If it has not be determined within that time than the claim is considered to have been accepted.