Claiming under HBCF insurance for incomplete or defective residential building works

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Licensed builders must take out insurance under the Home Building Compensation Fund (HBCF) before commencing residential building work valued over $20,000.[1] HBCF insurance provides an avenue for homeowners to recover compensation in some cases of incomplete or defective residential building work by a builder or tradesperson. However, homeowners must be careful to comply with the timeframes for notifying and bringing insurance claims under their policy. Failure to comply with these timeframes may result in the insurer denying a claim.[2]

When can homeowners bring a claim under HBCF insurance?

In order for homeowners to make a claim under HBCF insurance, there are three requirements:

  • the homeowners’ loss must have become apparent;
  • the loss or damage must have been caused by certain specified circumstances; and
  • a trigger event must have occurred.[3]

Bringing a claim under HBCF insurance becomes possible following the occurrence of a ‘trigger event’, i.e., after the builder:

  • becomes insolvent;
  • dies;
  • disappears; or
  • has their building license suspended by NSW Fair Trading.[4]

After one or more of the above trigger events have taken place, HBCF insurance will provide cover for homeowners in respect of loss or damage caused by a builder that has:

  • failed to commence residential building work;
  • ceased residential building work; or
  • carried out defective residential building work.[5]

Time limits for bringing a claim

Generally, the time limits for bringing a claim under HBCF insurance are specified in the insurance policy, or in the Home Building Act 1989 (NSW) (HB Act) and Home Building Regulation 2014 (NSW) (HB Regulation). The time limits are summarised in the following table:

Type of loss or damage Time limit
Non-completion of the work 12 months from the failure to commence or cessation of the work.[6]
Major defects 6 years after the completion of the work.[7]
Other 2 years or as otherwise prescribed by the Act and Regulation.[8]

 

In some circumstances, a homeowner will be permitted to bring a claim where the policy time limit has already expired. Known as either ‘extended claims’ or ‘delayed claims’, these claims may be possible where:

  • the loss became apparent during the final six months of the period of insurance;[9] or
  • the loss became apparent during the period of insurance, but a trigger event did not occur during this period.[10]

Extended claims are not possible for loss arising from non-completion of work, or from breaches of statutory warranty insured by a construction insurance contract.[11]

 

  • Loss became apparent during the final six months of the period of insurance

Where loss has become apparent in the final six months of the insurance period, as a result of a failure to commence or defects in residential building work, a homeowner may be able to bring an extended claim.[12]

  • Trigger event did not occur during insurance period

Alternatively, if the loss became apparent during the insurance period, but a trigger event did not occur during this period, a homeowner may also be entitled to bring a delayed claim.[13] For instance, a delayed claim would be possible where a builder failed to commence residential building works under a contract, but had not yet died, disappeared, gone insolvent or had their building license suspended.

To make a delayed claim, homeowners must be able to satisfy two requirements:

  • the loss was properly notified to the insurer within the insurance period; and
  • the homeowner diligently pursued recovery of the loss after the loss became apparent.

 

  • When is loss ‘properly notified’ to the insurer?

Loss is ‘properly notified’ to the insurer if the homeowner has provided to the insurer written notice of the loss, and the notice provides sufficient information regarding the nature and circumstances of the loss.[14] To do so, homeowners can complete a HBCF Loss notification form, accessible here. Notice must be given to the insurer within the insurance period.

 

  • What is ‘diligent pursuit’ of recovery of the loss?

From the time at which the loss became apparent, homeowners are required to take all steps which are reasonable and necessary to recover in respect of the loss.[15] These steps may include:

  • giving the builder written notice of the loss within six months of the loss becoming apparent;
  • allowing the builder access to return to inspect or complete the works;
  • lodging a complaint with NSW Fair Trading; and/or
  • commencing and advancing proceedings in a court or tribunal.[16]

 

Fulfilling steps (a) and (b) will entitle homeowners to bring a delayed claim for losses, in circumstances where a trigger event did not occur during the period of insurance.

Take home tips

If you are a homeowner seeking to recover in respect of incomplete or defective residential building work, HBCF insurance can be a powerful tool. To preserve your right to bring a claim, it is vital that you properly notify your insurer and take steps towards recovering your losses. For tailored advice on the steps which you should take to preserve your position to bring a HBCF claim, please contact a member of our team by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

[1] Home Building Act 1989 (NSW) s 92; Home Building Regulation 2014 (NSW) s 14.

[2] Home Building Act 1989 (NSW) s 103BB(1).

[3] HBCF Insurance Policy clause 4.1.

[4] Home Building Regulation 2014 (NSW) ss 40–43.

[5] Home Building Regulation 2014 (NSW) ss 40–43.

[6] Home Building Act 1989 (NSW) s 103B(1).

[7] Home Building Act 1989 (NSW) s 103BB(2)(a).

[8] Home Building Act 1989 (NSW) s 103BB(2)(b).

[9] Home Building Act 1989 (NSW) s 103BB(3).

[10] Home Building Act 1989 (NSW) s 103BB(2).

[11] Home Building Act 1989 (NSW) s 103BB(2A).

[12] Home Building Act 1989 (NSW) s 103BB(3).

[13] Home Building Act 1989 (NSW) s 103BB(2).

[14] Home Building Act 1989 (NSW) s 103BB(7); Wesfarmers General Insurance Pty Ltd t/as Lumley Insurance v James Arthur Fordham [2015] NSWCATAP 103.

[15] Home Building Act 1989 (NSW) s 103BB(6); Home Building Regulation 2014 (NSW) s 46B.

[16] HBCF Homeowner Fact Sheet published by iCare, accessible here.

Change on the horizon for the NSW building and construction industry

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The NSW Government has proposed three bills to reform the building and construction industry. The bills introduce new changes and consolidate existing legislation, with the aim of promoting safety, quality, and transparency in the industry. The draft bills and the key changes associated with each are as follows:

  • the Draft Building Bill 2022 (Building Bill);[1]
    • repeals and replaces the Home Building Act 1989 (NSW) (HBA);
    • introduces further licencing requirements for building professionals;
    • consolidates the statutory duty of care provisions;
  • the Draft Building Compliance and Enforcement Bill 2022 (BCE);[2]
    • repeals and replaces the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act);
    • introduces further regulatory and enforcement powers;
    • expands existing powers for class 2 buildings to all building work;
  • the Draft Building and Construction Legislation Amendment Bill 2022[3] and the Draft Building and Construction Legislation Amendment Regulation 2022 (BCLA)[4];
    • amend various NSW Acts and Regulations; and
    • introduce duties to avoid intentional phoenix activity.

The objects of the reforms

The NSW Government has identified seven key objects to be achieved by the reforms. These are:

  1. making home building fairer and easier;
  2. securing prompt and fair payment for building work;
  3. strengthening building compliance and enforcement;
  4. licensing commercial and home building work;
  5. supplying and using safer building products;
  6. upskilling the building and construction industry; and
  7. regulating prefabricated and manufactured homes.

We discuss how the bills deal with each of these objects below.

  1. Making home building fairer and easier

The Building Bill and the BCLA aim to protect consumers from loss caused by defective building works by:

  • Consolidating the duty of care provisions under the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and Environmental Planning and Assessment Act 1979 (NSW) (EPA Act).
    • This consolidation of the duty of care provisions achieves consistency across NSW building legislation and reflects Justice Stevenson’s interpretation of the DBP Act duty of care in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq).[5]
    • The duty of care is further expanded to subdivision work.[6]
    • The Building Bill specifies a 10-year limitation period for civil actions for loss or damage arising out of or in connection with defective building work.[7] This will displace the typical 6-year limitation period for breach of contract claims but may be subject to shorter limitation period for breaches of statutory warranties.[8]
  • Expanding on the HBA regime for home building works.
    • The concept of ‘major defect’ is replaced by ‘serious defect’, a broader definition including (for example) a failure to comply with the National Construction Code, relevant standards, or relevant approved plans.[9]
    • Certain statutory warranties are cast more broadly.[10]
    • The definition of a developer is expanded to parties which do not own land but have nonetheless contracted for, arranged, or facilitated the building work.
    • The NSW Government is considering extending the limitation periods for breach of the statutory warranties to 10 years for serious defects (previously 6 years) and 3 years for minor defects (previously 2 years).[11]
  • Requiring that payment claims served on residential owner-occupiers under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) include a “Homeowners Notice” document explaining the effect of and possible responses to a payment claim under SOPA.[12]
  1. Securing prompt and fair payment for building work

The BCLA introduces reforms to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) to ensure builders and tradespeople are paid more quickly and fairly. These reforms include:

  • Granting broader powers to adjudicators under SOPA including a power to obtain expert evidence and testing to resolve disputed factual issues.[13]
  • Creating ‘review adjudicators’ which are empowered to review SOPA adjudication determinations.[14] This is designed to operate as a new review mechanism of adjudication determinations which avoids the cost and delay associated with seeking judicial review of adjudication determinations in court.
  1. Strengthening building compliance and enforcement

The BCE introduces a consistent regulatory framework for the building and construction industry, by:

  • Repealing the RAB Act.
  • Expanding the NSW Building Commissioner and Secretary’s compliance and enforcement powers.[15]
    • Expanded powers include the ability to carry out investigations, require remedial action and/or rectification of serious defects, dispute resolution powers, and disciplinary action powers.
    • Existing compliance and enforcement powers for class 2 buildings will apply to all building work.
    • Promoting NSW Fair Trading as a body empowered to resolve building disputes.
    • Introducing a demerit points scheme to deter building licence holders from committing offences under building enforcement legislation.[16]
  • Establishing personal liability for directors and other ‘influential’ individuals for offences by the corporation.[17]
    • Directors or other individuals involved in the management of a corporation may be held personally liable for offences committed by the corporation/contracting entity. This shifting of liability acts as a significant deterrent for unauthorised behaviour and exposes individuals to harsh penalties.
    • This shift follows decisions of the NSW Supreme Court which indicate that the DBP Act duty of care is owed by directors or other individuals exercising ‘substantive control’ over building works.[18]
  • Regulating intentional phoenix activity, i.e., the liquidation of a company to avoid payment of debts and establishment of a new company in its place.[19]
    • The BCE and BCLA propose a duty for licence holders, registered certifiers, registered design practitioners, and other building professionals to take reasonable steps to avoid engaging with persons involved in intentional phoenix activity.
  1. Licensing commercial and home building work

The Building Bill streamlines and expands licencing requirements for building work. The reforms include:

  • Expanding licencing requirements from home building works to also:[20]
    • commercial works;
    • intellectual works, e.g., design works; and
    • other miscellaneous works, e.g., fire safety works and engineering works.
  • Holding directors responsible for supervising compliance with licencing requirements. A failure to properly supervise regulated works will result in heavy penalties for directors.[21]
  1. Supplying and using safer building products

The BCLA proposes changes to improve the safety and quality of building products.[22] These include:

  • Proposing amendments to the Building Product (Safety) Act 2017 (NSW).
  • Establishing various mechanisms to prevent the use of defective building products, including building product use bans, building product supply bans, and building product recalls.
  • Introducing a chain of responsibility for developers, building professionals, and manufacturers in respect of defective building work and products.
    • Each participant in the chain owes multiple and concurrent duties which relate to their involvement in the supply/installation of the defective building product, and relevant risk management factors.
    • Each participant may be liable for offences relating to using/supply a building product in contravention of a building product use ban, building product supply ban, or building product recall.
  1. Upskilling the building and construction industry

The Building Bill and BCLA introduce reforms aimed at promoting the technical competence of building professionals, including:

  • Introducing standardised guidelines for continuing professional development of builders, specialist tradespeople, engineers, building designers, and other professionals.[23]
  • Permitting penalty notice officers to issue education and training notices. These introduce training or education as an alternative to disciplinary action.[24]
  • Expanding skills assessments for contractor licence holders.[25]
  1. Regulating prefabricated and manufactured homes

The Building Bill introduces provisions specifically targeting ‘kit homes’, i.e., pre-fabricated or manufactured homes, including:[26]

  • Introducing new regulations for kit homes to improve building quality.
  • Emphasising that certain consumer protections for owner-builder and contractor work extend to kit homes. This ensures that purchasers of kit homes are adequately protected from loss caused by defective manufacture/construction of kit homes.

Take home tips

The amendments which may be of most interest to you are set out below:

If you are a… You may be particularly affected by…
Residential owner Consolidated duty of care provisions and HBA regime (item 1)
Developer Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)
Builder Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)

Licensing requirements (item 4)
Specialist tradesperson Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Architect Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Certifier Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)
Building product supplier or manufacturer Reforms to safer building products (item 5)

 

The draft bills closed for submissions on 25 November 2022. The NSW Government will now consider further amendments. The bills will be implemented following public consultation, likely in 2024. For personalised advice on how you may be impacted by and can best prepare for the implementation of the reforms, please contact Bradbury Legal by phone on (02) 9030 7400 or by email at info@bradburylegal.com.au.

 

[1] See full text of the Draft Building Bill 2022 here.

[2] See full text of the Draft Building Compliance and Enforcement Bill 2022 here.

[3] See full text of the Draft Building and Construction Legislation Amendment Bill 2022 here.

[4] See full text of the Draft Building and Construction Legislation Amendment Regulation 2022 here.

[5] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624. For further detail, see our article on this decision here.

[6] Draft Building Bill 2022 (NSW) s 216.

[7] Draft Building Bill 2022 (NSW) s 217.

[8] Limitation Act 1969 (NSW) ss 7, 14(1)(a).

[9] Draft Building Bill 2022 (NSW) s 76; Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 2.

[10] Draft Building Bill 2022 (NSW) s 75.

[11] Regulatory Impact Statement Part 3 for the Draft Building Bill 2022, accessible here.

[12] Draft Building Bill and Construction Legislation Amendment Regulation 2022 (NSW) Schedule 2 item [5].

[13] Draft Building Bill and Construction Legislation Amendment Bill 2022 (NSW) Schedule 3 item [5].

[14] Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 3 item [7].

[15] Draft Building Compliance and Enforcement Bill 2022 (NSW) Parts 2–6.

[16] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 7.

[17] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 8 Division 4.

[18] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624; The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659. See our previous articles here and here.

[19] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 6; Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 10.

[20] Draft Building Bill 2022 (NSW) Parts 1–3.

[21] Draft Building Bill 2022 (NSW) Part 3 Division 3.

[22] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 1.

[23] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 11.

[24] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 9.

[25] Draft Building Bill 2022 (NSW) Part 3 Division 2.

[26] Draft Building Bill 2022 (NSW) Parts 2, 4.