Financial product: Certified Builders Association's builders guarantee insurance
Thursday, 21 January 2016
Product: Builders Residential Guarantee Insurance
How it works: It is fair to say that the New Zealand building industry has a bad reputation. Leaky houses, apartments, schools, university buildings and shopping centres have all blighted the lives of those who bought them, or commissioned their building.
The Certified Builders Association (CBA), seeking a marketing edge for members, has introduced a guarantee underwritten by Lloyds of London. It's called Builders Residential Guarantee Insurance.
It will pay to remedy both structural and non-structural faults in a building that emerge in the ten years after completion, though there are limitations. Essentially, the faults have to be due to the failure of the builder to supply materials in good order, and fit for purpose, or the builder's failure to 'carry out the works in a proper and competent manner in accordance with the council approved plans and specifications'.
In other words, the policy covers the homeowner for the risk of the builder not doing their part of the job properly.
It is hard to interpret insurance documents, and understanding what exactly is covered. For example, if a builder followed consented plans faithfully, but the design was so poor that it lead to leaks, would the defect be covered? It is important to get legal advice before signing up for any insurance.
The CBA guarantee will also provide some protection against a person losing money should their chosen builder accept payments, but go bust before they start, or complete the work. That covers up to a maximum of 20 per cent of the contract value to a maximum of $500,000.
The policy has other benefits, such as paying reasonable additional costs and expenses, such as up to 26 weeks alternative accommodation, fees for the likes of architects, surveyors, engineers and lawyers, and removal of debris from the site.
The guarantee is designed to instil public confidence in CBA members, and should serious claims emerge against individual builders, it is hard to see them being able to remain as members, as Lloyds will be unlikely to want to cover their future work.
The policy replaces an optional guarantee that CBA members could offer.
As always with insurance, there are some fine print issues that need to be understood. This includes the duty of the homeowner to maintain their home, which raises interesting cladding issues, and also of the things that are not covered including for any personal loss of damage as a result of exposure to toxic mould. Amusingly Lloyds will not be liable for 'loss or damage directly occasioned by pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds'. That's not typically been an issue for Kiwi homeowners.
Rather more serious is that after becoming aware of any defect, the building owner has just 30 days to notify the builder and the 'coverholder' which is Archer Group- effectively the go-between standing between the building owner and Lloyds.
Verdict: This is a positive move by the CBA, but it would be easy to argue the 30-day notification period is just too short. Also, CBA should publish the policy document on its website so people seeking a builder can read it before they make their choice. At the moment, it is hidden in the members-only area of the site.