HIH/FAI Insurance

HIH Casualty and General Insurance Ltd was placed in provisional liquidation on 15 March 2001.

The NSW Government established a rescue package to assist victims of the HIH collapse who were covered by HIH or FAI Home Warranty Insurance policies. Claims paid to consumers under this package will come out of the Building Insurer's Guarantee Fund.

Building Insurers’ Guarantee Corporation

The Building Insurer's Guarantee Fund was established by the NSW Government under the Insurance (Policyholders Protection) Legislation Amendment Act 2001. The fund is administered by the Building Insurers' Guarantee Corporation (BIGCorp) and protection is provided for consumers to the same extent that would have applied under the home warranty insurance policies issued by HIH and FAI.

Claims covered

Claims may be made by the rescue package under the following circumstances:

• where residential building work was completed or had commenced on or before the date of the HIH collapse (15 March 2001):
  • provided the contractor had a valid insurance policy (either job specific or annual) and
  • the contractor had a home warranty insurance certificate in place covering the work at the time the work commenced.
• where residential building work was not commenced on or before 15 March 2001, but the home owner was given a certificate of insurance on or before 20 June 2001

• where a certificate of insurance was issued by a contractor to a home owner under a valid HIH or FAI annual policy after 15 March 2001 and on or before 20 June 2001 (an exception applies in the case of owner-builder work – for such work, the insurance must have been obtained by the owner-builder on or before 15 March 2001)
• where a certificate of insurance was issued on or before 20 June 2001 or in the case of owner-builders, issued on or before 15 March 2001, and later attached to a contract for sale of a property by speculative builders (ie. the property was constructed by the builder for resale), developers or owner-builders. The consumer who purchased the property will then be covered by the rescue package.

Claims not covered

Certificates issued after 20 June 2001, or in the case of owner-builder work, after 15 March 2001, will not meet the requirements of the Act. Any claim under such a certificate will not fall within the Government’s rescue package.

Persons who are not covered by the rescue package are:

• the builder to which the policy relates
• a developer to which the policy relates (a ‘developer’ is a client of a builder where the work involves four or more dwellings, a retirement village or accommodation specially designed for the disabled)
• beneficiaries covered under another home warranty insurance policy, ie. where the work was re-insured by HIA Insurance Services or Dexta Corporation
• a person who has previously been paid under a settlement with HIH

• persons who have previously appealed to the Consumer, Trader and Tenancy Tribunal (formerly the Fair Trading Tribunal) and the appeal has been dismissed and no further appeal avenues are available
• persons who entered into a contract with a builder or kit home supplier and the certificate of insurance was provided to them after 20 June 2001
• persons who purchased owner-builder work where the certificate of insurance was obtained by the owner-builder after 15 March 2001
• persons who purchased dwellings in a spec built project where the insurance was taken out by the builder, or the work commenced, or both, after 20 June 2001 (ie. the indemnity will only apply where the builder took out the insurance and commenced the work on or before 20 June 2001).

Losses covered under home warranty insurance 

Home warranty insurance provides cover for losses arising from incomplete work or a breach of statutory warranty.

The statutory warranty implies that in every contract to undertake residential building work:

• the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract
• all materials supplied by the licence holder will be good and suitable for the purpose for which they are to be used
• the materials will be new, unless otherwise stated in the contract
• the work will be done in accordance with any relevant law
• the work will be done with due diligence and within the time stipulated in the contract; where no time is stipulated, then within a reasonable time
• the work on construction or renovation of a dwelling will result, to the extent of the work done, in a dwelling that is reasonably fit for occupation

• the work and any materials used in doing the work will be reasonably fit for the specified purpose or result that the owner made known to the licence holder (or another person with authority of that licence holder), so as to show the owner relied on the holder’s skill and judgement.

Losses excluded from insurance cover

Insurance cover may exclude, or limit liability on claims, in relation to:

• loss of deposit in excess of the maximum payable
• progress payments that exceed the amount specified for the work
• loss from any defect in respect of owner-builder work referred to in a report on the work required by the insurance company prior to entering the insurance contract
• loss or damage resulting from wear and tear or, the owner’s failure to adequately maintain the work
• loss or damage caused by the normal drying out of building work where all reasonable precautions have been taken by the licence holder to allow for normal drying
• damage made worse by the failure of the owner to take reasonable and timely action to minimise the loss
• claims for appliances (eg. dishwasher) after the expiry of the manufacturer’s warranty period or, where there is no warranty period, after the reasonable lifetime of the appliance
• claims made outside the reasonable lifetime of the work and materials
• defects from faulty design provided by a beneficiary or a previous owner
• liquidated damages for delay
• defects in structural elements in the non-residential part of a building that supports or gives access to the residential part, unless it affects the residential part
• claims in excess of 20% of the contract price resulting from non-completion of work

• expert and legal fees (considered to be part of the cost of making a claim).

Notification period

The home owner must make a claim:

• not more than seven years from the completion of the work
• for incomplete work, twelve months from the date of the contract, or commencement date provided in the contract, or the date the work ceased, whichever is the later.

Processing a claim

The following steps apply:

1. Once a claim has been lodged we will assess it to determine:
   • whether there is coverage under any of the HIH/FAI home warranty insurance policies
   • whether there is a valid claim against the HIH/FAI home warranty insurance policies
   • whether the nature of the incomplete or defective work is the contractor’s liability – this may require assessment by a technical consultant
   • how much it will cost to have the defects rectified – if work is found to be defective or incomplete, then you, the contractor, will be responsible for the cost involved in rectifying or completing the work.
2. BIGCorp will liaise with you during the claim assessment process to give you the opportunity to resolve the matter with the home owner, make submissions and rectify any defective or incomplete work.
3. When Fair Trading receives a claim form from the home owner, you the contractor will be sent a copy of the claim form and asked to:
   • contact the claimant to arrange an onsite meeting to try and resolve the matter(s)

For more information on dispute resolution procedures and to obtain publications on contractors' rights and responsibilities, call 13 32 20 or visit www.fairtrading.nsw.gov.au