A recent case in the NSW Court of Appeal has revisited the interplay between the Home Building Act and the Insurance Contracts Act.
In Drummond v Gordian Runoff Limited ACN 052 179 647 [2024] NSWCA 239, (Drummond) the Court of Appeal dismissed the owners' appeal of an earlier decision in the Supreme Court of NSW, which had dismissed their claim that the insurer should provide cover for the loss and damage they suffered resulting from the (since liquidated) builder's defective and incomplete work.
Background facts
The owners had contracted with the builder to build their home in January 2009.
In 2017, the owner sued the builder in the NSW Civil and Administrative Tribunal for a breach of statutory warranties.
The builder went into liquidation in August 2020, 11 years after the insurance policy was first issued.
The owner notified the insurer of the loss in July 2020, and made a formal claim to the insurer in December 2020. Both dates were outside of the period of insurance.
The insurer refused the insurance claim, in accordance with section 103BB(3)(a) of the Home Building Act.
This section allowed for claims to be made outside the period of insurance if the builder had not yet gone into liquidation in certain circumstances. Notably, these delayed claims could only be made if (relevantly) the loss was properly notified to the insurer during the period of insurance.
As the time frame associated with delayed claims had not been met, the claim was refused.
Court below
In the Court below, the owners had argued, unsuccessfully, that:
- section 54 of the Insurance Contracts Act prevented the insurer from rejecting a claim on the basis that the claim does not comply with section 103BB
- section 103BB of the Home Building Act was inconsistent with section 54. Accordingly, section 109 of the Commonwealth Constitution applied to render section 103BB invalid, to the extent of inconsistency.
See our earlier article regarding that decision.
Decision on appeal
On appeal the principal issue was whether section 54 of the Insurance Contracts Act prevented the respondent from disclaiming liability. This turned on the proper construction of each of the policy, section 103BB of the Home Building Act and section 54 of the Insurance Contracts Act, specifically:
- whether section 103BB of the Home Building Act was itself incorporated as a term of the policy
- whether section 103BB relevantly alters the effect of the Policy to engage s 54 of the Insurance Contracts Act
- whether the operation of section 54 of the Insurance Contracts Act was attracted where a refusal to pay is premised upon the effect of section 103BB(3) and not upon the policy.
The other issue on appeal was whether section 103BB(3) of the Home Building Act (a NSW statute) was inconsistent with, or alters, impairs or detracts from the operation of, section 54 of the Insurance Contracts Act (a Commonwealth statute) within the meaning of 109 of the Constitution.
The Court of Appeal found that there was no error from the Supreme Court in finding that the insurer had validly refused to pay the insurance claim.
Notably, the majority found that neither the Home Building Act nor the Insurance Contracts Act operated to alter the terms of the insurance contract. Particularly, the Court found that the Home Building Act regulated when a home warranty insurance policy may or may not respond, but did not directly alter the rights between the parties within the contract of insurance and therefore did not incorporate itself as a term of the policy. The insurer was entitled to refuse based on the Home Building Act in these circumstances.
Consequently, this meant that section 54 could not be engaged in these circumstances, as it did not apply to a statutory refusal, only a contractual refusal.
Take away
The owners in Drummond were left without recourse. The decision serves as a reminder to notify a loss promptly and properly, even if a trigger event has not occurred.
Given that section 103BB applies to policies of insurance under the Home Building Compensation Fund, Drummond (which relates to the former home warranty insurance scheme) remains instructive to owners
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
