Building indemnity insurance oversight in the planning system
Early last month a further South Australian builder, Qattro Built Pty Ltd, entered into liquidation, suffering the same fate as 7 Star Construction Pty Ltd and Felmeri Builders & Developers Pty Ltd. The administrator of the latter estimated that creditor claims could extend up to $20 million,[1]
and advised that for up to 20 of the 120 customers of the builder no building indemnity insurance policy was in place.[2]
Putting aside whether this is contrary to the Building Work Contractors Act 1995 (SA) (BWC Act), these events nonetheless serve as a reminder of the important regulatory function that relevant authorities for building consents have with regard to building indemnity insurance (BII).
The requirements of the BWC Act
BII policies provide prescribed indemnities in the event of the insolvency, death or disappearance of building work contractors. Pursuant to section 34 of the BWC Act, it is an offence for a building work contractor to undertake prescribed works unless:
- a BII policy in accordance with the BWC Act is in force in relation to that building work; and
- in the case of domestic building work to be performed by the contractor under a domestic building work contract – the building owner has been provided with a certificate that evidences the taking out of the BII policy and complies with the regulations.
What building work must be insured?
Pursuant to section 33 of the BWC Act, BII is obligatory for domestic building work:
- commenced after 1 May 1987; and
- performed, or to be performed, by a building work contractor under a domestic building work contract or on the contractor’s own behalf,
and which is not:
- domestic building work for which approval under the Development Act 1993 or Planning, Development and Infrastructure Act 2016 is not required; or
- minor domestic building work (the cost of which under contract made on or after 15 October 2011 is less than $12,000).
Domestic building work, within the meaning of the BWC Act, is:
- the whole or part of the work of constructing, erecting, underpinning, altering, repairing, improving, adding to or demolishing a house; or
- the whole or part of the work of excavating or filling a site for work referred to in paragraph (a); or
- work of a class prescribed by regulation.
It should be noted that the Regulations substantially broaden the definition of domestic building work to include (but is not limited to), for example:
- the construction of a swimming pool or spa within the external walls or curtilage of a house;
- the installation of solar panels in relation to a house; and
- painting a house or part of a house.
Certification of BII by relevant authorities
Where a policy of BII is required to be taken out by the BWC Act, the certificate of insurance must be lodged by the applicant for building consent with the relevant authority pursuant to regulation 36 of the Planning, Development and Infrastructure (General) Regulations 2017 (SA) (Regulations). That is, the certificate of insurance must be lodged at the same time as the application for building consent if:
- the domestic building work is to be performed by a builder on the builder’s own behalf; or
- a domestic building work contract for the work has been entered into before lodgement of the application.
In any other case, the certificate of insurance must be lodged on or before giving the mandatory notice of the intended commencement of the building work in accordance with section 146 of the Planning, Development and Infrastructure Act 2016 (SA).
It is an offence with a maximum penalty of $2,500 for a person to commence domestic building work unless or until a copy of the certificate of insurance has been lodged in accordance with the Regulations.
Take home message
A policy of BII provides safeguards to the insured in the event of the insolvency, death or disappearance of the building work contractor. Although offence provisions exist under both the BWC Act and the Regulations for a failure to comply with the prescribed requirements relating to BII, these by their nature operate retrospectively. Mandatory notification of the commencement of building work serves as an opportunity for councils to investigate, within their resourcing constraints, the existence of a policy of BII prior to the commencement of works and the potential incurrence of losses by homeowners. Councils should also be mindful of receiving notification by the ‘owner’ through the Development Assessment Portal (DAP) or receiving notification outside of the DAP e.g. by email. We understand that this occurs from time to time, possibly to attempt to bypass the practical need of the DAP to first lodge the relevant policy of BII in the DAP prior to making the necessary notification via the DAP.
For more specific information on any of the material contained in this article please contact Rebecca McAulay on +61 8 8210 1278 or rmcaulay@normans.com.au or Stephan Koefer on +61 8 8217 1368 or skoefer@normans.com.au.
