Changes to the Builders Warranty Insurance Scheme in Victoria
By Jarrod Gutsa, Lovegrove& Cotton – Construction and Planning Lawyers
May 2014
here have been recent significant reforms to Building Law in victoria. On 8 May 2014 the Building Legislation Amendment Bill 2014 (“the Bill”) was moved in its second reading speech in the lower house. The bill changes the lay of the land in regard to many areas of building law in Victoria and is over 400 pages long. This article will focus entirely upon the changes to Builders Warranty Insurance in Victoria.
The reforms are a game changer for two reasons, being:
The circumstances on when you can make a claim have been broadened
The VBA will be responsible for administrating the fund.
Administration of the fund
The builders warranty insurance scheme has operated in Victoria as a last resort insurance scheme that is administered by the Victorian Managed Insurance Authority (“VIMA”). The Bill provides in Part 3 section 44 that the Victorian Building Authority (“the VBA”) from 1 July 2016 (or a day earlier if fixed by the Minister) that the VBA will have the power to administer the builders warranty insurance fund.
This is a significant change to how the fund will be managed as it will now come within the cartilage of the powers of the VBA. The predecessor to the VBA was the Victorian Building Commission (“the Building Commission”). The Building Commission did not have any administrative powers in terms of the fund. The writer notes that managing the fund is an extremely resource intensive process in terms of considering claims and making decisions regarding same. If there is to be a smooth transition from the fund being managed by VIMA to the VBA, it would follow that the human resources at the disposal of the VBA would need to increased significantly to manage such a fund.
Circumstances when a claim can be made
A further key change to the legislation will be the circumstances when a claim can be made on an insurance policy. Under the current legislation, the builders warranty insurance scheme is as a last resort insurance scheme. There are only very limited circumstances when a claim can in fact be made under the scheme. These circumstances are:
- if the builder is dead;
- if the builder is insolvent; and
- if the builder has disappeared.
The Bill significantly broadens the circumstances when a claim can be made under Part 5 section 137HB.
The circumstances will now include:
- if the builder is dead;
- if the builder is insolvent;
- if the builder has disappeared;
- ‘the Authority has certified that—
- a rectification order relating to the domestic building work has not been complied with and the domestic building contract has been completed or terminated; or
- (ii) the registration of the domestic builder has been wholly suspended or cancelled or suspended to the extent that the domestic builder cannot lawfully rectify or complete the domestic
building work; or - (iii) if the domestic builder is a natural person—
- (A) the builder is permanently incapacitated to the extent that the builder is unable to rectify or complete the domestic building work within 30 days; and
- (B) arrangements have not been made within the 30 days for a qualified person to act on behalf of the builder to rectify or complete the domestic building work; or
- (iv) if the domestic builder is a body corporate—
- (A) the director of the body corporate who is a registered building practitioner is permanently incapacitated to the extent that the domestic builder is unable to rectify or complete the domestic
building work within the prescribed period; and - (B) arrangements have not been made within the prescribed period for a qualified person to act on behalf of the domestic builder to rectify or complete the domestic building work.’
- (A) the director of the body corporate who is a registered building practitioner is permanently incapacitated to the extent that the domestic builder is unable to rectify or complete the domestic
When considering whether the authority can certify that a rectification order has not been complied with it must not do so until either the end of the appeal period in regard to the rectification order or until the VCAT has made a decision affirming the rectification order.
There is one further significant consumer protection in the Bill, which is that a claim may be made against the fund for a loss covered by the fund even if the Builder does not have the required fund coverage for that loss.
Conclusion
The reforms that will be introduced are significantly consumer driven and will provide a greater amount of protection for the consumer. The writer notes that there will be significantly challenges for the VCAT and for the VBA in administering or adjudicating on new areas under the Bill. As a final note only time will tell whether the proposed amendments under the Bill will auger for a better and more efficient system or will be unreasonably administratively burdensome on the industry.
