Inflation, labour shortages and supply chain delays are some of the key issues significantly affecting builders, leading to an increase in companies entering into liquidation. Consequently, this has led to countless homeowners experiencing significant grief in circumstances where their builder has gone insolvent.
Given the above, it is important homeowners know what to do if their builder becomes insolvent, disappears, or dies.
In Victoria, each builder who enters into a domestic building contract for works valued over $16,000 must procure Domestic Building Insurance (DBI) on behalf of the homeowner.
This cover provides protection to homeowners for incomplete or defective building works in the following circumstances, noting that the policy will cover up to $200,000 in policies issued before 1 July 2014 and up to $300,000 for policies issued after that date:
- if the builder dies;
- if the builder becomes insolvent; or
- if the builder disappears.
Importantly, the DBU insurance applies not just for the original homeowner who contracted with the builder, but also to subsequent purchasers who can make a claim against the builder, enlivening the DBI insurance cover.
For domestic builds, a builder must provide you with a copy of the certificate of currency that covers your property. It is imperative that you obtain a copy of the DBI policy from your builder prior to any works commencing, noting that each policy will specify a unique policy number, and include details of the property that the policy is with respect to.
Whilst the DBI policy does provide some coverage for homeowners, it is important to note that the DBI policy does not typically cover progress payments made in advance of works being completed, or for incomplete work which do not form part of the contract (i.e. additional variations). There is also a limit to the amount that a homeowner can claim with respect to incomplete works – typically 20 per cent of the building contract price. Given that each policy is distinct, the extent of coverage will ultimately depend on the policy itself.
To that end, if your builder becomes insolvent, it is good practice to:
- cease paying your builder’s progress payments so that you are not at risk of overpaying the builder for the works that they have not performed but claimed for; and
- lodge a claim with the respective insurer as soon as possible (and in any event, within 180 days of you becoming aware, or when you might reasonable be expected to have become aware of the insolvency event). The insurer will subsequently assess your claim and may elect to engage a building consultant to inspect the builder’s work to assess each claim.
The insurer will often engage a consultant to prepare an independent report on the status of the works and to prepare a schedule of works which details all items that will be covered under the policy. Once this is finalised, the insurer may request you to obtain a quote from an independent builder to undertake the works (as per the schedule of works). The insurer may arrange separate quotes to be obtained, to accurately assess the reasonable amounts to be paid to undertake the remaining / defective works. Depending on the extent of the claims, the insurer may decide to pay the builder to undertake the works, or may pay the claim out to you directly so that you can engage a new builder.
Challenging an insurer’s decision
If you are dissatisfied with the insurer’s outcome, you may wish to request a review of the insurer’s decision by lodging an application with VCAT within 28 days of such decision. Accordingly, it is crucial that you act promptly should you wish to challenge a decision as you will be time barred if you application is not lodged with VCAT within the required timeframe.
HWL Ebsworth Lawyers has expertise in acting for homeowners with respect to the abovementioned issues. Please contact one of our Construction and Infrastructure team members with any enquiries, or if you wish to discuss any aspect of the above.
This article was written by Leighton Moon, Partner, Tara Nelson, Senior Associate and Jashrin Whitehead, Solicitor.