What Home Warranty Insurance? Home Warranty Risks for Building Surveyors

December 2011

When issuing residential building approvals in Victoria and New South Wales building surveyors assume significant statutory responsibilities in relation to the existence of home warranty insurance. Since the inception of private certification these responsibilities have given rise to a steady stream of professional indemnity claims against building surveyors. These claims often arise because the required home warranty insurance was not in place and the allegation is made that the building surveyor is responsible because he/she should not have issued the building approval without being satisfied that the required insurance was in place.

Based upon actual claims we have experienced the reasons why the relevant building surveyor/principal certifying authority incorrectly believed either that home warranty insurance was not required or that the required insurance was in place when in fact it was not, include:

The building surveyor simply failed to obtain evidence of insurance;

Fraudulent evidence of insurance was provided;

An incorrect assumption that the exemption from the requirement for home warranty insurance for the construction of multi storey dwellings also applies to the alteration/additions of multi storey dwellings;

The incorrect assessment of what constitutes a “storey” for the purpose of the exemption from the requirement for home warranty insurance for the construction of multi storey dwellings;

However the most common cause for dispute is that the building surveyor incorrectly accepted evidence of insurance when the builder named in the insurance certificate was not party to the building contract.

In order to effectively manage risks associated with the need to be satisfied of the existence of home warranty insurance building surveyors need to fully appreciate the scope of their obligations and should establish and follow procedures to ensure that the necessary steps are taken to assess not only whether home warranty insurance is required but also whether the builder/head contractor is covered by the required insurance.

To fully appreciate the obligations in this regard we need to first examine the legislative instruments that impose these obligations:

Section 24A of The Building Act 1993 (VIC) requires that:

The relevant building surveyor may consider an application for a building permit for domestic building work that is to be carried out under a major domestic building contract but must not issue the permit unless he or she is satisfied that—

(a) the work is to be carried out by a builder who is registered under Part 11 in the appropriate class of domestic builder and is covered by the required insurance
whereas section 109E(3)(b) of the Environmental Planning and Assessment Act 1979 (NSW) reads:

(3) A principal certifying authority for building work or subdivision work to be carried out on a site is required to be satisfied:

(b) that the principal contractor for the work is the holder of the appropriate licence and is covered by the appropriate insurance, in each case if required by the Home Building Act 1989, before any residential building work over which the principal certifying authority has control commences on the site

The key common elements of the above are:

  • The requirement to identify the work to be done under the relevant building contract;
  • The requirement to identify the head contractor under the relevant building contract;
  • The obligation to be satisfied that the builder/head contractor is covered by the required insurance.

We understand that not all building surveyors obtain evidence of the building contract because they believe contractual matters are not relevant to their statutory functions. It is clear however that the above instruments impose obligations to obtain information from the building contract and building surveyors should have policies and procedures in place to gather this information. The most reliable way of obtaining accurate details of the contracting parties would be to sight the original contract and then retain a copy of the building contract.

To best protect yourself from an allegation of professional negligence arising from this home warranty insurance issue we recommend:-

  • Where there is uncertainty as to whether home warranty insurance is required for a particular project request your client obtain a legal opinion that you can rely upon;
  • Always sight (and retain a copy of) the building contract to make sure the same legal entity is named as the builder in the contract as is named in the home warranty insurance certificate.

There may be changes in the wind for NSW in this area with the recent submission to the by the Building Professionals Board to the NSW Planning Review acknowledging the difficulties certifiers face in determining when home warranty insurance is required and recommending removal of the requirement for the principal certifying authority to ensure home warranty insurance is in place before work commences.

To the extent that any of the above content constitutes advice, it is general advice without reference to your needs or objectives and therefore cannot be relied upon. Before acting on the above information you should obtain advice specific to your needs.

 
 

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