1 November 2021
By Jeff Anderson

A lot of the work we have done over the years is due to the elements, natural wear, and tear or a structural issue that has caused further issues. However, in the last 20 years or so, we have noted a rise in the number of projects we are contracted to do under insurance. That is, work undertaken at the behest of insurance companies to rectify poor quality construction that has had a detrimental effect on the building in related ways, and that is thus affecting the residents. This is the realm of HBCF claims and rectification.

It is big business too. To the end of June 2020, SIRA (State Insurance Regulatory Authority) reported 3,871 HBCF claims had been made since the start of the scheme. That means in 10 years, the scheme averaged nearly 400 claims a year, or more than 1 a day.

What is HBCF?

Insurance companies you ask? Yes. Insurers for construction operate The Home Building Compensation Fund (HBCF) which is a safety net insurance for homeowners of residential building projects in NSW that may be confronted with unfinished, inadequate, or incomplete building work undertaken by a builder tradesperson. If this is not ringing any bells, then let me point out, this was previously called Home Warranty Insurance.

Insurance under the Fund was initiated on 1 May 1997 under the auspices of the Home Building Act 1989. From 1 July 2010, the NSW Self Insurance Corporation (icare) became the sole entity providing insurance under the HBCF inside NSW. This insurance covers 6 years for major defects and 2 years for all other defects from the date of completion of the residential building work or termination of the residential building contract.

What the HBCF covers

A Certificate of Insurance given for HBCF covers and compensates homeowners for:

Failure to begin work: loss of deposit under the building contract. This is claimable for up to 1 year from the failure to commence.
Inability to complete work: up to 20% of the agreed contract price including any variations, which is claimable for as long as 12 months from the discontinuation of work.
Major defects: the repair costs, can be claimed for a period of up to 6 years from completion of the work. On the off chance that the homeowner detects the defects in the last 6 months of the insurance claim lapsing, they may lodge a claim within 6 months of awareness of the defect(s).
For defects that are not major: the repair costs can be claimed for a period of up to 2 years from completion of the work. In case the homeowner detects the defects in the last 6 months to elapsing of the insurance, they may lodge a claim within 6 months of awareness of the defect(s).
In a case where a homeowner becomes aware of a loss during the insurance period yet, a claim cannot be made on the grounds that the builder can be pursued, a claim can still be made after the insurance period elapses if there is a proper notification of the loss suffered to iCare. The success of this claim will require the owners to provide proof of tenaciously seeking the builder to enforce their rights.

When insurance must be provided

Under the HBCF, insurance must be provided where the contract value is more than $20,000 or if the contract price is still undetermined; but where reasonably where it can be determined that the market cost of the work and materials included is likely to be more than $20,000. Insurance is taken out, by:

any builder or tradesperson before receiving any money (this includes deposit) from a homeowner or owner-builder pertaining to a residential building contract and before beginning any work under that agreement
a ‘spec’ builder before beginning any residential building work on any property possessed by the builder
any developer before getting into an agreement for the sale of a property on which a builder is undertaking or has accomplished residential building work for the developer.

As noted, it must be acquired before the beginning of any work or exchange of any money under the contract agreement including the deposit. Under the HBCF insurance, the policy must have a minimum cover per dwelling worth at least $340,000 from 1 February 2012. This requirement further extends to ensuing buyers of the property (as long as a prior claim on the policy has not been exhausted).

To determine the eligibility of builders and tradespeople to obtain the cover, a risk assessment is undertaken. ‘Eligibility’ in this case implies that the builder has been evaluated and has been granted the entitlement to apply for Certificates of Insurance that are job-specific

Once considered eligible, a builder or tradesperson is cleared to apply for a Certificate of Insurance given explicitly for your project. They can then acquire it from the approved insurance agents.

Certificate of insurance

The certificate of insurance under the HBCF needs to:

be given for your specific project – it must include the name of the contractor, homeowner, property address and the total value of the contract
ensure the builder’s; name and licence number are identical to that on the building contract

Before making any payment under a building contract, it is advisable to check that a certificate of insurance is valid and authentic by:

reaching out to the approved insurance agent whose contacts appear on the certificate, or
utilising the HBCF certificates register

Exemptions from HBCF insurance requirements

There is no legal prerequisite to acquire insurance under the HBCF in cases where the cost of the contract or the logical market cost of the labour and materials involved does not surpass $20,000. Also, we note that work done by some Government departments on residential buildings is automatically exempted from the provisions (Section 103E Home Building Act 1989; under clauses 59 and 60 of the Home Building Regulation 2014).

Stand-alone contracts for interior paintwork; or the establishment of built-in furniture; or business correlated to tennis courts, ponds and water features are also exempted. The Construction of new multi-storey residential buildings is also exempt and does not need insurance cover under the HBCF.

For purposes of exemption from insurance requirements, a multi-storey building is a structure that:

has more than three storeys in rise, and
encompasses at least two separate dwellings.

I should point out that the construction of new multi-unit residential developments (where the rise is three storeys or less) do require HBCF insurance and cannot be exempt. For instance, villas, townhouses, projects with low and medium-rise require insurance cover under the HBCF. However, for the sale of such dwellings, a developer must attach the certificate of insurance to the contract.

In the case of an existing residential multi-storey building, insurance cover must be taken out before work is done such as; repairs, maintenance, alterations and additions.

Applying for exemption from insurance requirements

There are some situations your builder may advise they are exempt from needing HBCF. Under Section 97 of the Home Building Act 1989, if it can be proved there are extenuating circumstances, or it is impossible or excessively difficult to achieve full compliance the Chief Executive has the powers to grant an exception from the insurance requirements. (Persons qualified to apply for this kind of exemption are prescribed under Clause 55 of the Home Building Regulation 2014).

A Contractor’s financial or business circumstances cannot be considered a basis for an exemption under the HBCF. It is also a Council requirement under the development construction approval process, to notify the principal certifying authority (PCA) about certain information about the builder and their insurance before commencement of the building work.

If this is not done, it can influence whether the PCA may issue an occupation certificate for the finished building work, further impeding the property sale adversely affecting its market price.

How to claim building insurance under the Home Building Compensation Fund

In the event of financial loss or damage, occasioned by incomplete work or failure to fix defective work by a builder, tradesperson, developer or owner-builder, a homeowner or resultant buyer may lodge an insurance claim under the HBCF.

A claim should be lodged where you, the homeowner, have no possible avenue to recoup the monetary loss nor have the work rectified or completed. If a homeowner realises flawed or incomplete work during the insurance period, they should promptly notify the insurer in writing.

Our work in this area

Our role does not lie in the application of your lodgement, nor in providing you with an opinion as to whether a claim is relevant. Our work is to advise regarding issues you have noted, and to – as applicable – provide you with rectification services, which come upon approval from the insurer.

At Remedial we are qualified insurance repair builders that take a collaborative approach working with the; insurance provider, consulting engineer or building consultant to undertake rectification works of the highest recommended standards.

Our expertise in Home Warranty claims ensures we give tailored attention to each and every detail to guarantee that both homeowners and insurance providers are completely happy with the outcome of the rectification works. Our services incorporate both structural and aesthetic issues, that includes some common claims like faulty waterproofing, defective window installation, structural issues and concrete spalling.

What is HBCF? What you need to know