Review of private building certifier insurance requirements
Media release
26 January 2005: People using private building certifiers should be aware that certifiers may not have adequate insurance cover against potential claims of negligence, particularly if the certifier does not continue in business, the Department of Building and Housing advised today.
The advice follows a comprehensive review, begun by the former Building Industry Authority (BIA)*, of the indemnity insurance building certifiers are required to have. The review is now in its final stages.
Under the Building Act 1991 building certifiers must carry insurance to cover their liabilities. For example, a building certifier may be liable if it negligently certified a house that later needed repairs because it did not meet Building Code standards.
The type of insurance they must carry is set out in the “Building Certifier Insurance Performance Specification” set by the Department.
In summary, the current specification requires two forms of insurance:
- A requirement for certifiers to hold insurance cover for claims of negligence extending 10 years from the completion of a job.
- A requirement to obtain run-off insurance if they go out of business – this would provide customers with up to 10 years of cover from the time the business closed. In addition, certifiers are required to pay a bond that can be used to buy run-off cover if the certifier fails to do this when they go out of business.
John Ryan, General Manager Building Controls, said concerns around building certifier insurance emerged with the leaky building problem at the end of 2002.
The principal problem was that building certifiers couldn’t get insurance to cover weathertightness for leaky building risks, Mr Ryan said.
As a result, the BIA restricted the type of work certifiers could undertake to that which they could get insurance cover. So, if cover could not be obtained for weathertightness activity, certifiers were unable to inspect and certify weathertightness related work.
The BIA then began a formal review of certifier insurance.
As a result a new specification is being proposed by the Department of Building and Housing and is being issued to private building certifiers and other interested parties for consultation.
A key change in the proposed specification is the requirement that run-off cover is purchased in advance (and therefore the payment of a bond is not required).
If certifiers are unable to purchase run-off cover as proposed, or to meet other requirements of the new specification, then they will be unable to renew their approval to operate as a building certifier. **
The review found that the bond scheme and other arrangements providing for the purchase of run-off cover have not proven effective in securing the level of cover intended by the current scheme.
This has been addressed by the proposed Performance Specification.
The Department expects a new specification to be in place in March 2005 after consideration of feedback on the proposals.
“The review has given us a much better understanding of the current nature of the insurance market and how that relates to problems like weathertightness and how that should be covered by insurance,” Mr Ryan said.
“This is in line with a range of other measures undertaken to improve the building regulatory framework. These include the introduction of a new Building Act with its requirements for the accreditation of those undertaking certification work, and the licensing of building practitioners.”
The certifier industry is going through substantial change as a result of the Building Act 2004. As a result, building certifiers are currently assessing their business options and a number are in the process of forming arrangements to work with councils as sub-contractors.
"This means the expertise and capacity they provide will not be lost to the industry,” Mr Ryan said.
* The BIA was dissolved on 30 November 2004 and its functions transferred to the Department.
** Certifiers are required to have an Approval to Operate, which is issued by the Department. This is renewed regularly – usually annually.