Builder insurance in NSW explained: HBCF, public liability and contract works

"We're fully insured" is one of the most common lines in building, and one of the least useful. There are several types of insurance connected to a building job, they protect different people against different things, and only one of them is required by law for most residential jobs. Knowing the difference lets you ask the right questions.

The short version

Rules and thresholds can change, so check the current position with NSW Fair Trading or Building Commission NSW and your own insurance adviser.

Home building compensation cover (HBCF)

HBCF, formerly known as home warranty insurance, is the cover the Home Building Act requires for residential building work over $20,000, according to the NSW Government.

Three things to understand:

1. It is a last resort. You can generally only claim if the builder has died, disappeared, become insolvent, or had their licence suspended for failing to comply with a court or tribunal order to pay you. If the builder is still trading, the route for defects is the builder, then Building Commission NSW, then NCAT. Our article on statutory warranties explains these steps and the time limits.
2. It must be in place first. Where cover is required, the builder cannot ask for a deposit or any other payment until the certificate has been issued to you.
3. The certificate must match your job. Check it is in the same name as the contractor on your contract, for your property address, and describes the work. Verify it on the HBC Check register rather than relying on the copy you were given.

HBCF does not cover every building. For example, it does not apply to multi-unit buildings of more than three storeys. Strata work on larger buildings relies on other protections, so ask your strata lawyer or manager what applies.

Public liability insurance

Public liability responds when the building work injures a third party or damages their property. Examples include a neighbour's car hit by a falling object, a passer-by injured by an unsecured scaffold, or damage to the neighbouring property from excavation.

In a strata building the risks are higher: many people, shared access, and nearby units, lifts and car parks. Committees and strata managers often require a minimum level of cover as a condition of engaging a contractor, so ask what your building's requirement is. The most common figures in trade contracts are in the millions of dollars, but the right amount depends on the job and your insurer.

Ask for a certificate of currency, and check:

• the policy is in the name of the contracting entity;
• the policy is in force for the whole job, not about to expire;
• the sum insured is appropriate for the work;
• the activities covered include the type of work; and
• the policy does not exclude key risks for the job, such as work at height or work on occupied buildings.

Contract works insurance

Contract works (also called construction or erection all risks) insurance covers the works as they are built. If a storm damages the half-built roof, or materials are stolen from the site, or a fire starts, this is the policy that pays to repair or replace the damaged work.

Who should hold it depends on the contract. Many building contracts require the builder to do so, and the contract should say. If it does not, find out whether the building, home or strata insurer covers the works under construction. A gap here is common and expensive.

Workers compensation

Employers in NSW must hold workers compensation insurance for their employees. For subcontractors, the position depends on whether they are genuinely independent and on how they engage their own workers. Ask the builder how they confirm that subcontractors are insured.

Professional indemnity

Designers, engineers and consultants carry professional indemnity (PI) insurance to cover claims arising from their advice or design. A builder who takes on design responsibility, such as a design-and-construct contract, may carry PI cover too. If your job includes design, ask who is responsible and whether PI cover is in place.

How to check, step by step

1. Ask for certificates of currency for each policy, not just a statement.
2. Check the name matches the contractor on the contract.
3. Check dates: current now and for the whole programme.
4. Check limits and exclusions, and ask your own insurance broker to review if the job is large.
5. Verify the HBCF certificate on the register.
6. Ask for updated certificates if the job runs past the policy's expiry.
7. Put the insurance requirements in the contract, so that failing to maintain them is a breach.

For strata committees and managers

Include insurance requirements in your contractor engagement checklist, and keep the certificates on file. Our article what to ask a maintenance contractor has a fuller list of questions. The owners corporation's own insurance is a separate matter that your strata manager can advise on.

Working with us

You are entitled to see a builder's insurance certificates before you sign, and that includes ours. Our Legal & Licensing policy sets out our approach. If you would like to discuss a project, get in touch.

Sources

• Contracts for residential building work, NSW Government
• HBCF certificates register, NSW Government
• HBCF: what am I covered for?, icare NSW

This article is general information, not insurance or legal advice. Insurance requirements depend on the contract, the building and the work. Confirm with an insurance broker and NSW Fair Trading. Full website disclaimer