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 [email protected].

[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.