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Taking a Break or Leaving the Industry?


Important insurance facts to know.

We regularly speak to builders who want to take either a temporary or permanent break from the industry and when talking with us, they often say that they don’t need their insurances anymore. However, this couldn’t be further from the truth.

We've all heard about people tripping on a worksite or accidentally damaging an expensive stone bench top during construction, but what about the risks once the house has been built and is being lived in? Builders have been tracked down 5 or even 15 years later for issues related to a house they have built in the past.

A common misconception is that the Home Owners Warranty Insurance you take out on behalf of a home owner provides you with protection from claims. In actual fact, the Home Owners Warranty Insurance only provides cover to the home owner (and any subsequent home owners).

Therefore, if a claim is lodged against the Home Owners Warranty Insurance policy, you could be pursued by the relevant Home Owners Warranty Insurer to recover any costs they may incur in meeting the claim.

In addition to this, home owners have the benefit of certain statutory warranties under the relevant State or Territory building legislation in respect of your building works for a specified warranty period (up to 10 years from completion depending on your jurisdiction). This means that a home owner can pursue you for certain issues relating to your work even after you have completed the job. Box

Having identified that our clients face these risks, we've included "products liability" to the Liability section of the HIAIS / QBE annual Contract Works and Public/Products Liability Policy. This provides indemnity against personal injury or property damage arising from your “product” where you are found legally liable. Your "product" can be anything you construct, manufacture or install and the "product" component of the insurance covers you after your work has been handed over to the home owner. Although for builders who work on a Single Project Insurance basis (usually projects in excess of $5 million), product liability cover is not automatic but may be available upon request.

If you are ever faced with one of these situations, what's important to recognise is that you need to have a current products liability policy at the time that the bodily injury or property damage occurs. If the bodily injury or property damage occurs after the cancellation date of your policy, or after the date your policy was lapsed, you may find yourself uninsured.

A typical example where you'll be held responsible long after completing work, is a water leak. Incorrectly applied waterproofing, incorrectly installed shower bases, a leaking join or a nail that's penetrated a pipe, can all result in damage not noticed until years later. That leak might then cause damage to joists, beams, carpet, plaster and even the home owner's belongings. As the builder, you could be held responsible for this expensive damage.

Case Study: A recent example involved a shower base waterproofing failure in a home built over 5 years prior. The eventual cost to repair the damage resulting from the faulty workmanship was more than $240,000 (almost the original build cost)!

What's more, there's also personal injury to consider. An incorrectly constructed balcony or balustrade that gives way, or even a loose tile, can create a situation where someone is injured. If your work is found to be at fault you may have to pay significant compensation costs. So, if you’re planning to take a break or leave the industry, make sure you have products liability cover in place, because ‘that call’ about damage or injury can come at any time.

Home owners Warranty Insurance Considerations

If you're planning to take a break from the industry, you may also be thinking what to do with your business. At this point, it's also important to consider the impact on your Home Owners Warranty Insurance.

We recommend speaking to your accountant or financial advisor about the ongoing viability of your business (especially where you're part of a corporate structure) as death, deregistration, liquidation or administration of your business can have important implications in a Home Owners Warranty Insurance claim.

In these situations, you could lose control of future defect claims brought about by the owners of homes you've built and organised Home Owners Warranty insurance for. For instance, the insurer may respond to, inspect and organise repairs to any claims as they see fit (with no obligation to inform you). The insurer may then seek recovery of any costs involved with such inspection and repair process from you as the builder.

To discuss these covers further or for any other insurance queries, call our team on 1800 762 852.