Why do you have to worry about Home Warranty Insurance? Why Building Surveyors Need to Worry

Home warranty insurance issues continue to be a significant source of claims against building surveyors. There has been significant discussion about what building surveyors have to do to make sure the building works under the building approval are covered by the required insurance.

A watershed decision in 2013 by the Victorian Civil & Administrative Tribunal (VCAT) in the matter Elturan v Unicon Property Group Pty Ltd & Ors (Domestic Building)[2013] VCAT 924 found that a certificate of home warranty insurance did not apply because the entity named as the builder on the home warranty certificate was different to the entity named as the builder in the building contract.

Briefly the relevant facts in this case were that Unicorn Property Group Pty Ltd was a builder named in a building contract whilst Miva Constructions Pty Ltd was the builder named in the Home Warranty insurance used in support of the Building Approval for that work.

It was found to be immaterial that: 

  • The builder's registration is issued to an individual, rather than to the entity entering into the building contract;
  • The builder's registration number was shown on the home warranty insurance.

This was because the insurance named a different entity as the builder to the one performing the building work who was the builder named under the building contract.

VCAT found the building surveyor was negligent in issuing the permit without the required insurance being in place.

A key highlight of the above case is that the Tribunal rejected an argument put forward by the building surveyor that because the builder's licence number was noted on the insurance he was covered by the insurance. Importantly Senior Member Farrelly noted the builder under the contract was the company Unicon Property Group Pty Ltd and not the Building Practitioner.

Three years ago, we published an article in TABS which raised the issue of the need for building surveyors to take appropriate steps to be satisfied that the relevant building works are covered by the required insurance prior to the issue of a building approval and how failure to do so leaves the building surveyor exposed to claims where the home warranty insurance is not valid.

Some actual examples we have seen of claims in this area 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 certain types 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 was not party to the building contract.


To fully appreciate the obligations of the building surveyor we need to first examine the legislative instruments that impose these obligations:


Section 109E(3)(b) of the Environmental Planning and Assessment Act 1979 (NSW) reads:

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

      1. that a construction certificate or complying development certificate has been issued for such of the building work or subdivision work as requires development consent and over which the principal certifying authority has control, before the work commences on the site, and
      2. 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, unless the work is to be carried out by an owner-builder

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

(2) 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—

      1. 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

 The Building Legislation Amendment Bill 2014 (Vic) proposes amendments to Section 24A that require the relevant building surveyor must not issue a building permit unless satisfied that the work is to be carried out by a builder who is a party to the major domestic building contract;

For section 24A(2)(a) of the Building Act 1993 substitute
"(a) the work is to be carried out by a builder who
(i) is registered under Part 10 in the appropriate class of domestic builder; and
(ii) is covered by the required insurance in relation to the work; and
(iii) is a party to the major domestic building contract

It is interesting to note the proposed amendment clearly requires the builder to be 'covered by the required insurance' whereas Section 24A in its current form is unclear as to whether the policy is required to cover the work or the builder. The relevant Ministerial Order is unambiguous in this regard and requires that the insurance covers the building work to be carried out under the contract. These apparent differences are inconsequential because s135 of The Building Act 1993 (VIC) has the effect that a person holds the required insurance if the building work which the person manages or arranges is covered by the required insurance.

On a practical level the proposed amendment to Section 24A should not significantly alter the key steps undertaken by a prudent building surveyor in assessing whether there is appropriate insurance in place to cover relevant building work undertaken by the builder that is subject of the building permit prior to issue.

To best protect yourself from an allegation of professional negligence arising from these home warranty insurance issues 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 then rely upon; and

When reviewing the evidence of the relevant insurance policy also obtain evidence of the:

  • Building contract to ensure the same legal entity is named as the builder in the contract as is named in the home warranty insurance certificate - this is most accurately determined by examining entity named and the ABN on both documents – they must be consistent;
  • Ownership of the subject property to ensure that the actual owner(s) is party to the building contract and is the same as named on the Home Warranty insurance – this can be done through production of an Extract of Title or a copy of the Local Government Rates Notice.
 
 

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