Canberra home owner's building insurance: are you covered?

Statutory warranties and insurance schemes for protection have been strengthened as of late.

With concerns about building construction quality in the ACT becoming more prevalent, those buying a new dwelling or constructing their own may increasingly look to statutory warranties and insurance schemes for protection. However, the recent case of The Owners – Units Plan No. 3115 v The Trustees of the Master Builders Fidelity Fund Scheme [2019] FCA 115 (The Owners – Units Plan 3315) should serve as a cautionary tale, as these protections may not be a robust as they first seem.

Insurance requirements under the Building Act

The Building Act 2004 (ACT) (the Building Act) requires a builder to obtain one of the following prior to commencing certain residential building work:

1. A residential building insurance policy for the work;
2. A certificate issued by an approved insurer stating that the insurer has insured the work under a residential building insurance policy; or
3. A fidelity fund certificate from an approved fidelity fund scheme.

The insurance requirements of the Building Act apply to residential building work of no more than three storeys. The requirements are aimed at protecting home owners from the negligence or a breach of statutory warranties by the builder which causes the owner loss. In practice, in the ACT this will often be done by obtaining a fidelity fund certificate from the Master Builders Fidelity Fund scheme (the Scheme).

The background of the case

The Owners – Units Plan No. 3115 involved a claim made by the Owners Corporation of the Elara Apartments. Completed in 2007, the Elara Apartments have been beset by a long list of defects, with owners claiming flaws in the common property, structural load bearing walls, balconies and the provision of services.

The Owners Corporation commenced proceedings against the Developer for breach of the statutory building warranties, however, these were discontinued when the Developer entered liquidation. The Owners Corporation then made a claim against the Fidelity Fund certificates issued by the Scheme in respect of each Unit (the Certificates). The Scheme refused to consider the claim due as it was made outside of the timeframe contained in the Certificates.

The decision

In The Owners – Units Plan No. 3115, the Court found:

1. A claim under a fidelity fund certificate in the ACT does not arise until the builder becomes insolvent, disappears or dies and the owner suffers loss from breach of a statutory warranty or the builder’s negligence;
2. The basis of the claim must arise within the period set out under the Building Act and the fidelity fund certificates (in these circumstances, this was five years after the issue of the Certificate of Occupancy for each unit); and
3. As the Builder did not enter insolvency until after this period had expired, the claim did not arise within the period of cover and the Scheme was not required to consider the claim.

As a result of the above, the Scheme was entitled to refuse to consider the Owners Corporation’s claim and the Owners Corporation was unable to obtain any relief from the Certificates.

It is clear that when purchasing a new dwelling or constructing your own dwelling, there are important and complex considerations to take into account. The relevant insurance or fidelity fund protection is only one such aspect. Prudent buyers and home owners will conduct their own due diligence into matters concerning the construction of the dwelling (including the insurance cover) to ensure their investment is protected.

Written by Julian Pozza. Julian is a Lawyer in the Commercial Real Estate Section at BAL Lawyers.

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