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Requirement for insurance under the Home Building Compensation cover

If you are undertaking residential building work valued at more than $20,000, the law requires that you take out insurance under the Home Building Compensation (HBC) Scheme (often referred to as Home Warranty Insurance) and give a certificate of insurance to the owner.

This must be done before you:

  • demand or accept any payment from the owner (including a deposit) and
  • start doing any of the residential building work.

You cannot avoid insurance under the HBC by carrying out residential building work for an owner by using two or more separate contracts i.e. each contract being less than $20,000. The value of the work under each contract would be added together in order to determine whether insurance is required.  

Insurance exemptions

If you are contracted to construct a multi-storey residential building you are not required to take out insurance under the HBC.  A multi-storey building is a building that has a rise in storeys of more than 3 (not including car park space) and contains 2 or more separate dwellings.

If you are contracted to do residential building work that consists only of built-in furniture work, and any incidental electrical wiring work involved in the installation of lighting as part of built-in furniture, the contract is exempt from the requirements to take out insurance under the HBC if the work is done under a separate contract and not as part of a contract for other residential building work.

For the purposes of this exemption built-in furniture work means the making and installation of furniture that is made to measure and fixed to a dwelling (such as built-in cupboards, bench tops, wardrobes, entertainment units and the like), and which may be made off-site and installed as a complete unit.

Also, if you are not contracted directly by an owner e.g., you are contracted by a builder; you do not need to take out insurance under the HBC. This work will be covered by the other party’s insurance under the HBC. 

Failure to take out insurance under the HBC

If you fail to take out insurance under the HBC when required by law, you cannot enforce the contract against the owner. This may mean you cannot recover payment from the owner for work done although a court or tribunal may order that you receive payment or part payment if it is considered just and equitable in the circumstances. 

Failure to have the insurance when required in an offence under the Home Building Act with maximum penalties of $110,000 for a corporation and $22,000 for sole traders and partnerships. 

Insurance coverage

The insurance under the HBC is taken out for the benefit of the owner (and all later owners of the property) and covers all defects in the residential building work and non-completion of that work.

The insurance under the HBC covers:

  • all major defects for 6 years after the work was completed and
  • all other defects for 2 years after the work was completed
  • loss arising from non-completion of the work for a period of not less than 12 months after the failure to commence, or cessation of the work.

When can an insurance claim be accepted?

If insurance under the HBC was taken out after 1 July 2002, a claim can only be made under that policy if the contractor is:

  • deceased 
  • missing or
  • insolvent

In addition, for insurance policies issued on or after 19 May 2009, an insurance claim can be made where a contractor licence has been suspended due to a failure to comply with an order of a court or tribunal in respect of a building claim.

In all other cases, an owner cannot make an insurance claim and must take action against the contractor. 

Building contracts and HBC cover

You are legally required to disclose the cost of HBC coverage in your residential building contracts. This cost is the total amount of money you pay for the cover which may include brokerage, fees and taxes...” 

Consequences of an insurance claim being accepted

If a claim is accepted by the insurer it will normally have the right to recover any money paid out under an insurance policy required by the HBC from the contractor or the contractor’s estate.

Doing residential building work for an owner-builder

An owner-builder is an “owner” for all purposes. This means that if you do any residential building work more than $20,000 directly for the owner you must insure those works.  HIA has prepared information about working for an owner builder

To find out more, contact HIA's Workplace Services team

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