Insurance: Dont assume youre covered

Insurance: Don’t assume you’re covered


By Mel Wyeth 


“Good supervision and inspections are the key to success,” explains Mel Wyeth of Reno-Consult.


home renovations

Building, extending or renovating a home is one of the most significant investments people make. But it is one that in general they have little knowledge or experience of. All Australian states and territories have compulsory Home Warranty Insurance to cover defects or non-completion of building work. As the insurance premiums are paid within the contract sum, the consumer naturally believes that any defective work would be covered by their policy.

However, this is not always the case and the most common complaint from consumers is that the insurers are acting oppressively and litigiously by either disputing or undervaluing their claims. The Home Warranty Insurance is known as a “last resort system” in all states except Queensland. In Queensland it is known as the “first resort”. The difference is that in order to claim with the “last resort system”, the builder has to be either dead, to have disappeared or be insolvent.

The “first resort” scheme means that a claim can be made in any event for non-completion or defective work. While on the face of it the Queensland scheme appears to be superior, it is not the preferred model of the Federal government, the other states or the Housing Industry Association (HIA). This is because the insurance is not privately operated. It is a government monopoly, run by the Building Services Authority, which also compulsorily licenses the builders.

The obvious danger with this scheme is the possible conflict of interest by being both the builder’s licensee and the insurer. “When the role of the regulator and the insurer become fused there is a moral hazard, since finding in favour of one party or the other will have direct financial implications for the regulator/insurer.” (Senate Standing Committee Report November 2008. ISBN 978-1-74229-003-4.)

The basic problem with Home Warranty Insurance, Australia-wide, lies in the definition of what is or is not “a defect”. As there is no legally binding set of standards and tolerances as to what constitutes a “defect”, the HIA stated to the Parliamentary Standing Committee that a building defect is “a matter of evidence and subjective judgement” and “is a grey area of opinion and doubt”. The insurer does not, therefore, simply assess the claim, the cost and when to pay to rectify, as with other types of insurances. Given a difference of opinion over a defect, the frustrated consumer can only apply to a tribunal for a final decision, but this is slow and expensive.

Queensland’s BSA, for example, quotes that it can be three or four years before a consumer gets a tribunal hearing. Clearly the builders, the insurer and their solicitors are experts at prolonging proceedings and trying to wear down the claimant. Among its recommendations, the Parliamentary Standing Committee Report on Home Warranty Insurance (HWI) concluded that even the name of the insurance scheme was misleading to consumers, but nothing has been done as yet to improve consumers’ understanding or protection.

So what can a consumer do?
The essential thing for anyone contemplating building, extending or renovating is to obtain a thorough knowledge of the building process themselves and to fully understand the terms of the insurance product they are purchasing.

It is also a matter of the consumer making sure that they:
• engage a competent professional to design and detail the work.
• ensure that the builder or tradesperson is licensed, without any recorded complaints or outstanding disputes.
• check that the builder or tradesperson is well-recommended and experienced in the type of project.
• have the builder’s supervisor’s name written into the contract as the responsible person.
• ensure to include a clause that the work will not be sub-let without approval.
• engage an independent professional advisor to regularly inspect the work in progress with the builder’s supervisor (it’s worth the money).
• only make stage payments when the professional advisor has confirmed that the work done is acceptable and the stage complete.
• obtain all certificates and warranties from the builder.
• keep a good checklist and accurate record of events.
• keep a good sense of humour and always stay courteous.
• try and reach an agreement and avoid litigation if a dispute arises.