What is home building compensation cover, and when does it pay?

The names it goes by

The same cover turns up under several names, and they are one scheme. The NSW Government’s pages call it the Home Building Compensation Fund (HBCF) and home building compensation (HBC) cover, and the contracts page also calls it home warranty insurance. The Act deals with it as insurance under Part 6, and the certificate the builder gives you is a certificate of insurance.

The State Insurance Regulatory Authority (SIRA) regulates the cover, and icare runs the fund. icare draws one distinction worth knowing: a builder’s Certificate of Eligibility only means the builder can apply for cover. It is not the Certificate of Insurance, which is issued separately for each building project.

From the Consumer Building Guide and icare, Before I build, what do I need to know?.

When it pays

icare lists the events that let the fund step in. It may pay for loss from building work left unfinished or defective when your builder:

• becomes insolvent, for example through bankruptcy or liquidation
• disappears and cannot be contacted
• has a suspended licence because they did not comply with a money order that NCAT or a court made in your favour.

The NSW Government’s list adds a fourth: the builder has died. icare calls these trigger events. Only a trigger event opens a claim, and finding defects or unfinished work does not count as one by itself.

“If you become aware of defective or incomplete work, you must immediately notify your insurer in writing,” says the NSW Government’s disputes page. icare’s claim page sets the time limits: 12 months where the work did not start or was not finished, 6 years of completion for major defects and 2 years of completion for other defects.

From icare, What is icare HBCF and why do I need it? and icare, HBCF: am I ready to make a claim?.

What it does not cover

icare is direct about what the fund is not. It is not a day-to-day building warranty, and does not cover delays, disagreements or unfinished work while the builder is still in business and can put things right. Nor does it cover everyday building disputes, maintenance and wear and tear, a change of mind about design or materials, work by unlicensed builders, or costs above the maximum cover. While the builder is still trading, you will usually be expected to try other routes first, such as the builder directly or dispute resolution.

Work done by an owner-builder cannot be insured under this part of the Act at all (section 95).

From icare, HBCF: what am I covered for? and Home Building Act 1989, section 95.

How long it lasts

Section 103B of the Act sets the shortest periods a policy may give. For loss from work not being finished, at least 12 months after the work failed to start or stopped. For other loss under a policy other than construction period insurance, at least 6 years after completion where the loss comes from a major defect, and at least 2 years after completion for any other loss. Those periods can be varied in the ways the section and the Regulation allow.

If a loss becomes apparent in the last 6 months of the period of insurance, section 103BB gives an extended claim period: a claim may be made within 6 months after the loss becomes apparent. The Act carves out some losses, among them loss from work not being finished: for that, there is no extended claim period. icare also notes that the cover goes with the property, so it may also protect later owners.

From Home Building Act 1989, sections 103B and 103BB and icare, What is icare HBCF and why do I need it?.

How much it pays

One figure, $340,000, does two different jobs here, and it is easy to read it the wrong way. In the Home Building Regulation (clause 45), $340,000 for each dwelling is the minimum amount of cover, as it is set for a construction period insurance contract. icare’s claim limits treat $340,000 as the most that can be claimed on a policy, or $300,000 for a policy issued before 1 February 2012, and that is the total for the property, including any claims by earlier owners. Read together: the Regulation sets a floor for the cover, and icare’s limits set the most you can claim on a policy.

The Regulation also caps the excess at $250 (clause 54), takes an insurer to have accepted a claim if it does not give written notice of its decision within 90 days of the claim being lodged, or any further time you and the insurer agree (clause 39), and gives 45 days from written notice of an insurer’s decision to appeal it (clause 49).

From Home Building Regulation 2014, clauses 39, 45, 49 and 54 and icare, HBCF: what am I covered for?.

Checking the certificate

“You should have received a certificate of cover with your contract,” the NSW Government’s insolvency page says. “To check you have cover, you can use the State Insurance Regulatory Authority (SIRA) HBC Check. You can search by property address, the certificate number (if known), or by the name or licence number of the contractor.”

icare adds that the builder’s name should match on the contract, the licence and the certificate. For help with a dispute with a cover provider, the Consumer Building Guide points to SIRA at sira.nsw.gov.au or 13 74 72.

From NSW Government, Protecting yourself in case of builder insolvency and the Consumer Building Guide.

New apartment buildings

Developers of new eligible apartment buildings of 4 storeys or more work under a separate scheme, the Strata Building Bond and Inspections Scheme. The developer pays Building Commission NSW a bond equal to 2% of the contract prices for the building, appoints a building inspector within 12 months of the work being finished, and the inspector’s final inspection comes 21 to 24 months after it. The bond may be used to fix defects those inspections find.

From NSW Government, Strata Building Bond and Inspections Scheme.

For the steps before a claim, the disputes guide sets out the order. The defects guide covers the warranties the law gives you, and how long they last.