Home Indemnity Insurance Claims in WA

What it is

Home indemnity insurance (HII) is the Western Australian last resort cover that protects a homeowner, and any later owner, against financial loss when a builder cannot finish the work or cannot meet a valid claim for faulty work. Residential building work contracts in WA are governed by the Home Building Contracts Act 1991 (WA). Where the work is valued over $20,000, the Act requires the builder to take out HII in the name of the owner before accepting any payment or starting work.

The scheme is managed by Building and Energy, a division of the Department of Local Government, Industry Regulation and Safety. HII is written by private insurers approved by the Minister for Commerce. The builder chooses the insurer and pays the premium as a one off payment.

What triggers a claim

The policy only responds where a relevant circumstance exists in relation to the builder. That is the whole gate, and it is narrow:

• the builder is an individual and the builder dies, disappears or becomes insolvent
• the builder is not an individual, such as a corporation, and the builder ceases to exist or becomes insolvent
• the State Administrative Tribunal cancels the builder's building services contractor registration, or the Building Services Board does not renew it, because the builder failed to satisfy the financial requirements prescribed under the Building Services (Registration) Act 2011 (WA)

Nothing else opens the policy. This is the biggest gap in the WA scheme and it is where most homeowners actually sit. A builder who is solvent, trading, contactable and simply refusing to come back and rectify defects is not a relevant circumstance. HII will not pay. The cover does not reduce the builder's liability during the six year period, and while the builder is still standing the builder remains the party on the hook.

What the policy pays

If a relevant circumstance exists, HII covers completion of the work at no extra cost to the owner:

• up to a limit of $200,000, or the value of the contract work if that is less
• the same $200,000 limit also absorbs any claims for defective work made in the six years from practical completion
• loss of deposit is covered up to $40,000
• the insurer may charge a $500 excess

The $200,000 is not a completion limit sitting alongside a separate defects limit. It is one pool. A stalled build that eats most of the completion cover leaves very little behind it for defects that surface in year four.

How long the cover runs, and how to claim

In most cases the policy covers the work during the construction period and for six years from the date of practical completion. Practical completion is when the building, extension or renovation is complete and ready for occupation. The policy is issued in the name of the owner, so if the home sells inside that window the benefit passes to the new owner.

The practical deadline is the end of the six year insurance period. An owner lodging a claim needs the certificate of insurance, the building contract and permit, invoices and receipts, proof of payments made to the builder and evidence of the defective or incomplete work. QBE publishes a builders warranty insurance certificate register that lets an owner check the certificate the builder handed over is genuine. Where the home is incomplete and the builder is insolvent, check with the liquidator whether the builder's contract works insurance is still current before the site sits exposed.

The pathway when there is no trigger

Where no relevant circumstance exists, the route is the Building Commissioner. Building and Energy runs a complaint process for regulated building services and home building work contracts, and the Building Commissioner can issue a building remedy order requiring the work to be fixed. In general a building service complaint cannot be considered more than six years after completion of the work. For home building work contract complaints the limit is generally three years from when the contract was entered into or from when the dispute arose. Most decisions and orders of the Building Commissioner can be reviewed by the State Administrative Tribunal.

What a WA builder has to do

A builder who does not take out HII as required can be prosecuted and fined up to $50,000, and may lose their building registration. The certificate goes to the permit authority with the building permit application, and the permit authority can refuse the application without evidence of cover. Owner-builders do not need HII before they build, but must obtain it if they sell within seven years of the date the building permit was granted, and failing to give the buyer a valid certificate of insurance carries a $10,000 fine.