Although not an element of the re-write of the Home Building
Act, the underwriting arrangements for home warranty insurance
will change significantly from 1 July 2010. The existing
arrangement, i.e. underwritten by the private sector, is about to
end as there is no longer a critical mass of insurers interested in
Lumley and CGU ceased issuing project certificates on 31
December 2009. The reduction in competition has resulted in a
premium gouge with some builders reporting recent premiums of 10%
of the contract value. Further, the remaining insurers seem
reluctant to indemnify work to a level equivalent to their
predecessors. All of course in the context of housing supply in New
South Wales falling short of underlying demand by approximately
20,000 dwellings per annum.
Home warranty insurance has certainly taken a battering over the
years. But it seems nothing will put it down. It reminds one of the
Black Knight in Monty Python's Holy Grail. Unfortunately,
unlike the movie, it is no laughing matter.
The spin of "major structural reform" and the re-write
of the Home Building Act seems just that. Builders and
consumers should prepare to be disappointed. New underwriting
arrangements and amendments that tinker around the edges side-step
the fundamental issues, namely the hardship that arises out of a
last resort system and the brake this form of insurance places upon
the roll out of sufficient residential work to meet the underlying
demand. There is really nothing in the consultation paper that
suggests that the NSW Government is addressing these concerns.
There will, it seems, be no winners.
The consultation paper outlines four 'key options' for
change. Two of those options would simply reflect the way the Act
has already been applied by the courts, so I won't waste your
time on them here.
Other 'key options' include:
Preventing claims by common directors of building companies,
spouses, relatives and members of the executive committee of an
owners corporation (the last of which seems quite odd); and
Introducing a fifth trigger to the indemnity, where the
building contract involved a licensed partnership that has failed
to comply with a rectification order and one of the partners
These are marginal at best.
The consultation paper includes an array of other 'options
for change', most of which are in fact clarifications. It does
however include a suggestion that home warranty insurance should
not apply where the original licensed contractor returns to the
site to rectify defects under the original contract (which makes
sense). Another practical suggestion is to amend the Act to provide
that an owners corporation can lodge a claim in respect of defects
that are common to multiple dwellings on behalf of individual unit
Much like that "Black Knight" in the Holy Grail, home
warranty insurance has little prospect of delivering on its goals,
but it still fights on regardless. However in a perverse twist, it
is the consumers and builders who stand to lose their arms and
The Sportscraft refunds and returns policy limitations went beyond consumer's rights under the Australian Consumer Law.
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