Insolvent Builders: Review of decisions about home warranty insurance payouts

Posted on Aug 1, 2017 by Janine Wilson   |   Categories: Building & Construction

The demise of Huxley Homes has produced a steady stream of home warranty insurance claims.

The NSW Civil and Administrative Tribunal (Tribunal) has jurisdiction to consider and determine appeals against decisions by home warranty insurers. A claimant has 45 days from receipt of the decision of the insurer in respect of their claim to lodge an appeal with the Tribunal.

The Home Building Act provides that the Tribunal has the power to re-consider the decision that was made by the insurer.

In Hawli v NSW Self Insurance Corporation [2017] NSWCATCD 38, the issue was whether or not construction work on Mrs Hawli’s property had actually commenced within the meaning of the Home Building Act and the insurance policy.

If construction work had not commenced, then the insurance policy only provided for damages for the loss of the deposit. However, if the construction word had commenced, Mrs Hawli should have been entitled to a payment of 20% of the total contract price for the works.

At the time that Huxley entered liquidation, Mrs Hawli had signed a building contract and paid a deposit. The construction certificate had been issued. The builder had engaged a surveyor and the only work that occurred was a peg out of the site and a survey was conducted. No physical work had been conducted on the site by the builder.

The key issue was whether the pegging out work on the site that the builder engaged a third person to undertake was “residential building work”, and if so, was that a “commencement” of residential building work.

The home warranty insurer claimed that “residential building work” only involves physical alteration of the site by the builder and that any work performed before that occurred is preparation only and does not constitute residential building work.

The Tribunal found that the survey work was preliminary work conducted pursuant to the building contract.

The Tribunal held that, in the circumstances of this matter, the engagement by the builder of a consulting engineer to peg out the site was “residential building work” within the meaning of the Home Building Act and within the terms of the policy of home warranty insurance.

The home warranty insurer’s submission that “residential building work” only involves physical alteration of the site by the builder and that any work performed before that occurred is preparation and not “residential building work” is inconsistent with previous Tribunal decisions. The Tribunal considered that the carrying out of residential building work is not confined to physical construction.

Accordingly, Mrs Hawli was awarded the higher payment under the home warranty insurance.

Please contact Janine Wilson should you have any questions or would like to discuss any issues regarding home building warranty insurance claims.