Important facts to know about managing your insurance.

Learn about managing your insurance if you leave or take a break.

We regularly speak to builders who want to take either a temporary or permanent break from the industry. When talking with us, they often say they no longer need their insurances. 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 can be held liable many years later for issues relating to a home they built.

Having identified that our clients face these risks, we’ve included “products liability” in 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” for which 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 homeowner.

For builders who work on a single-project insurance basis, product liability coverage is not automatic but may be available upon request.

Suppose you are ever faced with one of these situations. In that case, it’s important to recognise that you need to have a current products liability policy at the time 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 lapsed, you may find yourself uninsured.

Common Misconceptions of Home Warranty Insurance

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

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

In addition to this, homeowners 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 homeowner can pursue you for certain issues relating to your work even after you have completed the job.

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

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, ensure you have product liability cover in place, because ‘that call’ about damage or injury can come at any time.

Home Warranty Insurance Considerations

If you’re planning to leave the industry, you may also be considering what to do with your business. At this point, it’s also important to assess the impact on your Home 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 Homeowners 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 Warranty insurance. 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.

Waterproofing Failure – 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)!

Planning to take a break or leave the industry is common situation for all residential builders. However, planning how you could protect yourself and your business prior to having a break is important. A HIA Insurance Services Specialist can assist with these common questions and support you to with your transition.