LawTalk Blog

The true value of Building Indemnity Insurance

fence in front of house

Disputes between homeowners and builders in relation to domestic building works are just one of the areas that the Andersons' Commercial Department specialise in.

Recently the news has reported on a number of stories related to building companies that have gone bust. Particularly in South Australia, a number of large building companies have been making headlines as they have been forced into liquidation. Liquidation often leaves behind a wake of unfinished works, unpaid contractors and a multitude of insurance claims. 

On a national scale, the latest building works scandals have broadly focussed on the quality of works in relation to high density apartments builds. Structural issues plagued the Opus Towers in Sydney leaving residents without a home whilst flammable cladding leaves numerous new apartment complexes at severe risk in Melbourne.

The building industry as a whole is under national scrutiny and on the cusp of perhaps some real reform.

How Building Indemnity Insurance applies to your building works?

Many homeowners are not aware of the ways in which Building Indemnity Insurance applies to their building works.  Firstly, builders who performs works in excess of $12,000 must undertake a policy of insurance for the benefit of the homeowner in relation to the proposed work prior to commencing the build.  Homeowners are entitled to, and should request, a copy of that policy prior to works commencing.  

The insurance applies to protect the homeowner in relation to the statutory warranties found in section 32 of the Building Works Contractors Act 1995. 

Discover more about Building Indemnity Insurance.

How much can be recovered under the Building Indemnity Insurance?

A homeowner cannot make claims against the insurance where the builder or its entity remains trading and able to be pursued. The insurance is one of last resorts, meaning homeowners can only claim in circumstances where the builder is insolvent, dead or disappeared.

For the homeowners left without a builder after the liquidation of their builder, homeowners can then make a claim on the Building Indemnity Insurance

Here in South Australia, QBE Insurance is the dominant insurer in the market for this type of insurance as dictated by the South Australian Government Financing Authority (SAFA).

Such insurance was historically limited to the sum of $80,000 irrespective of whether the insured building works were valued at $12,001 or $1,000,000.  This artificial limit created issues where homeowners were left with works to be completed or remedial works in excess of $80,000.  Despite concerns within the industry as to the suitability of a fixed limit of $80,000, little changed.

The Building Work Contractors Regulation 2011 imposes a statutory minimum of $80,000 for such insurance coverage and so this amount remained relevant.  Historically the insurers offering policies in this market simply met the minimum.

How the industry has changed

At the direction of SAFA, new insurance policies issued by QBE Insurance after 1 July 2017 provide coverage beyond the minimum to a fixed amount of $150,000. 

It is important that homeowners check the insurance policies in place prior to works commencing.  If you have concerns or are simply unsure, make sure you seek advice from a lawyer.  It is the builder's responsibility to have that insurance and your right to have a copy of the policy.

Conversely, if you need to access the Building Indemnity Insurance after the build, be sure to check the value of the policy, the terms of the policy, and any time limitations immediately upon becoming aware of any future claim.

Andersons Solicitors are specialists in the area of building work disputes and are ready to assist with your concerns prior to, during and after any domestic building works.


Get in touch with today's blog writer:
Felix Hoelscher

Partner in Commercial Law and Business Law

Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to South Australian legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.

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