HOME INDEMNITY INSURANCE
Home Indemnity Insurance protects home owners against financial loss if a builder is unable to complete residential building work or meet a valid claim for faulty workmanship because of death, disappearance or insolvency (ie inability to meet outstanding debts).
What is the law?
If residential building work worth over $12 000 is to be undertaken, the law requires that a builder must take out indemnity insurance in the name of the home owner. In most instances, the insurance policy must cover the residential building work during the construction period and for six years from the date of ‘Practical Completion’. This is the date from which the residence, extensions or renovations are capable of being used for their intended purpose. The law came into effect on 1 February 1997.
Owner builders are not required to take out indemnity insurance before they can build, but must do so if they sell within seven years of obtaining an owner builder licence from the local government authority.
A builder who does not take out indemnity insurance as required or fails to comply with any other of the home indemnity insurance provisions of the Home Building Contracts Act 1991 can be prosecuted and fined up to $10 000.
Who is responsible for obtaining the insurance?
A builder carrying out residential building work on behalf of a home owner is responsible for taking out home indemnity insurance and for giving the owner a copy of the certificate of insurance BEFORE:
- starting any residential building work; or
- asking the home owner to pay a deposit; or
- asking the home owner to pay any other money payable under a residential building contract.
Even if a builder owns the property to be built, extended or renovated, indemnity insurance cover must be obtained before a building licence is issued by the local government authority.
This is to ensure that, if the property is sold during construction or during the period of indemnity insurance (referred to in this leaflet as the six year insurance period), subsequent owners are covered.
Is all residential building work over $12 000 required to be covered?
All residential building work must be covered. This is defined in the law to mean:
- The construction of a new dwelling.
- The extension or renovation of an existing dwelling.
- Placing a dwelling on land.
- Construction, extension or renovation of multi unit grouped homes or high rise developments.
- Construction or carrying out of work associated with any of the above. Such work includes pergolas, fences, swimming pools, landscaping and similar work.
IF:
- Building only a pergola, fence, or swimming pool, arranging landscaping, or for similar work to be done in or around an existing dwelling, and if residential construction work or placing a dwelling on land is not being undertaken – the law does not require indemnity insurance to be taken out. This is the situation even if the value of the work exceeds $12 000.