FREQUENTLY ASKED QUESTIONS

For Builders & Tradespeople

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For Homeowners

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FOR BUILDERS

What is the difference between public liability insurance and errors & omissions indemnity?

As a builder, public liability insurance will cover you if you cause damage to someone’s property – or in some cases, injury. For example, a plank falls off a house you’re building and damages the neighbour’s house. Then it’s your public liability.

Errors and omissions indemnity on the other hand covers your professional liability for claims of financial loss. For example, the owner of the house you’re building decides they’re not happy with some aspect of the service you provide, or failed to provide. Even if it’s some years after you complete the building!

By law, there are many things that a builder is liable for on every job – regardless of whether or not you have a written contract. Under both the Building Act and the Consumer Guarantees Act, a tricky customer can find plenty of reasons to take their builder to court.

I'm an employee with an LBP license, should I get my own insurance?

This is up to you. As an LBP license holder unhappy clients can make a complaint to the Building Practitioners Board, which you will have to defend. The cost of defending yourself can be covered by insurance, as can the cost of any fines that are imposed. Your employer may take out insurance that covers their employees, but it is not clear whether you'd still be covered in the future if there's an issue and you've moved on and the company you worked for at the time has ceased trading.

Of more concern to most builders is the risk of civil court claims, where a homeowner takes the building company to court over an issue that they claim has cost them money. This can be covered by Errors & Omissions Indemnity and as an employee you should enquire whether your employer has cover. You should also consider taking out your own policy, just in case your employer isn't around in 10 years when a problem arises.

Does having an LBP license mean I have more liability?

No, you are still working under the same regulation and legal obligations in terms of contract law as you always have, and as most professionals and business people do. Licensing hasn't changed this. The difference now is that consumers are more aware of their rights and more willing to have a go at you if they're unhappy.

Builders have also been under-insured compared to other building industry professionals, such as architects, engineers and building inspectors, who all have professional indemnity insurance. This cover is now available to building contractors and projects managers from Builtin New Zealand, and is specially designed to cover your "building and related service activities".

Because my liability still lasts for 10 years do I have to keep paying for my insurance when I retire or leave the industry?

You don't have to continue to pay your insurance, it is up to you. However, if you want to be covered for the period of your liability after you stop trading, then we can switch the policy to what's known as "run off cover". This means that your premium gets cheaper each year after you've stopped working, until you no longer require cover.

What are damages?

Damages are defined as “monetary compensation awarded through a court.”

What is the difference between insurance and a guarantee?

Put simply a guarantee means that if a particular event happens, the guarantor will do something if the guaranteed party can’t or doesn’t.

Insurance means that in the event of a particular insured event happening, the insurer will pay.

A simple comparison may help explain the difference:

INSURANCE GUARANTEE
2 Party Contract
(Builder or Owner and Insurer)
3 Party Contract
(Builder, Owner & Surety Underwriter)
Duty of Utmost Good Faith Disclosure: as in ordinary contract law
Cancellable (generally) Non-cancellable (generally)
Calculates premium based on losses No loss anticipated, fee for service
Involves transfer of risk to insurer No transfer of risk
No reimbursement from insured Responsible party reimburses surety underwriter for losses
Who underwrites your policies?

We work with a range of insurers to ensure we get the best possible terms and expertise available.  These include CBL Insurance Limited for guarantees, warranties and liability insurance, Lumley for contract works, NZI for commercial motor vehicle and Protecsure for tools.  They are all licensed insurers with strong financial strength ratings.

Are you a member of a dispute resolution service?

Yes, as registered financial advisers Builtin is a member of The Insurance & Savings Ombudsman Scheme at PO Box 10-845, Wellington 6143.  If you have  problem, concern or complaint about our service please contact us in the first instance. If we cannot agree on how to fix the issue, or if you decide not to use the internal complaints scheme, you can contact The Insurance & Savings Ombudsman. This service will cost you nothing, and will help us resolve any disagreements. Their phone number is: 0800 888 202.

How much will a Homefirst Guarantee cost?

The Homefirst Guarantee is very reasonably priced considering it covers you for 10 years. The fee depends on the value of the building contract, your builder will be able to tell you the price of a guarantee.

When should I apply for a guarantee?

An application for the Homefirst Guarantee should be submitted as soon as a deposit is paid, and if there is no deposit, before work commences. You must ask your builder to apply for the guarantee on your behalf. Generally the application form is completed and signed by both parties at the time of signing the building contract.

Who completes the guarantee application form?

The builder is responsible for completing the application form.  However, we require it to be signed by both the builder and the homeowner.  Ask your builder to contact us for a copy of the application form.

What extra information is needed with a guarantee application?

Applications must be accompanied by a copy of your payment schedule and detailed quote/scope.

What if I don’t have the Building Consent?

It’s not a problem if you don’t have the Building Consent at the time of lodging the Homefirst Guarantee. Just note when you expect to obtain it on the application form.

How long will it take to receive confirmation that my guarantee application has been received?

We'll assess the application within 10 working days from receipt of a properly completed and signed application.

How do I know my guarantee application has been accepted?

When the Guarantee has been accepted we issue a Certificate of Guarantee to both builder and homeowner, along with a copy of the terms & conditions. If you have not received your Certificate of Guarantee please contact us.

When does cover start under the Guarantee?

Cover starts on the earlier of when the building contract is signed or the date the building consent is issued.

Can I transfer the Guarantee when I sell the house?

Some older guarantees can be transferred once to a subsequent purchaser within 30 days of the settlement date.  Newer guarantees, subject to the specific wording of the policy, can in most cases be transferred multiple times during the term of the policy.  A transfer application form must be completed and the fee paid once a Sale & Purchase Agreement is completed. Applications for transfer must be made no later than 30 days from the settlement date.

How is an insurance-backed guarantee different from my legal rights under consumer protection law?

The Building Act and Consumer Guarantees Act provide homeowners with legal rights when it comes to the products and services they buy. They mean that your builder is responsible for ensuring their work is fit for purpose and they must fix defects they are responsible for for up to 10 years. However, if your builder is no longer trading and can’t complete the work or return to fix defects then this legal protection is of no value at all. That’s where a third party guarantee like Homefirst comes into play.

FOR HOMEOWNERS

What is the difference between insurance and a guarantee?

Put simply a guarantee means that if a particular event happens, the guarantor will do something if the guaranteed party can’t or doesn’t.

Insurance means that in the event of a particular insured event happening, the insurer will pay.

A simple comparison may help explain the difference:

INSURANCE GUARANTEE
2 Party Contract
(Builder or Owner and Insurer)
3 Party Contract
(Builder, Owner & Surety Underwriter)
Duty of Utmost Good Faith Disclosure: as in ordinary contract law
Cancellable (generally) Non-cancellable
Calculates premium based on losses No loss anticipated, fee for service
Involves transfer of risk to insurer No transfer of risk
No reimbursement from insured Principal (the builder) reimburses surety underwriter for losses
Who underwrites your policies?

We work with a range of insurers to ensure we get the best possible terms and expertise available.  These include CBL Insurance Limited for guarantees, warranties and liability insurance and other licensed insurers with strong financial strength ratings for our other insurance policies.

Are you a member of a dispute resolution service?

Yes, as registered financial advisers Builtin is a member of The Insurance & Savings Ombudsman Scheme at PO Box 10-845, Wellington 6143.  If you have  problem, concern or complaint about our service please contact us in the first instance. If we cannot agree on how to fix the issue, or if you decide not to use the internal complaints scheme, you can contact The Insurance & Savings Ombudsman. This service will cost you nothing, and will help us resolve any disagreements. Their phone number is: 0800 888 202.

How much will a Homefirst Guarantee cost?

The Homefirst Guarantee is very reasonably priced considering it covers you for 10 years. The fee depends on the value of the building contract, your builder will be able to tell you the price of a guarantee.

When should I apply for a guarantee?

An application for the Homefirst Guarantee should be submitted as soon as a deposit is paid, and if there is no deposit, before work commences. You must ask your builder to apply for the guarantee on your behalf. Generally the application form is completed and signed by both parties at the time of signing the building contract.

Who completes the guarantee application form?

The builder is responsible for completing the application form.  However, we require it to be signed by both the builder and the homeowner.  Ask your builder to contact us for a copy of the application form.

What extra information is needed with a guarantee application?

Applications must be accompanied by a copy of your payment schedule and detailed quote/scope.

What if I don’t have the Building Consent?

It’s not a problem if you don’t have the Building Consent at the time of lodging the Homefirst Guarantee. Just note when you expect to obtain it on the application form.

How long will it take to receive confirmation that my guarantee application has been received?

We’ll assess the application within 10 working days from receipt of a properly completed and signed application.

How do I know my guarantee application has been accepted?

When the Guarantee has been accepted we issue a Certificate of Guarantee to both builder and homeowner, along with a copy of the terms & conditions. If you have not received your Certificate of Guarantee please contact us.

When does cover start under the Guarantee?

Cover starts on the earlier of when the building contract is signed or the date the building consent is issued.

Can I transfer the Guarantee when I sell the house?

Some older guarantees can be transferred once to a subsequent purchaser within 30 days of the settlement date.  Newer guarantees, subject to the specific wording of the policy, can in most cases be transferred multiple times during the term of the policy.  A transfer application form must be completed and the fee paid once a Sale & Purchase Agreement is completed. Applications for transfer must be made no later than 30 days from the settlement date.

How is an insurance-backed guarantee different from my legal rights under consumer protection law?

The Building Act and Consumer Guarantees Act provide homeowners with legal rights when it comes to the products and services they buy. They mean that your builder is responsible for ensuring their work is fit for purpose and they must fix defects they are responsible for for up to 10 years. However, if your builder is no longer trading and can’t complete the work or return to fix defects then this legal protection is of no value at all. That’s where a third party guarantee like Homefirst comes into play.

Do I need a written contract?

The Building Act requires a written contract to be in place for all residential building work over $30,000 incl GST, and there are minimum terms and default provisions that must be included. For projects worth less than $30,000 you are not legally required to have a written contract, but it is strongly advised that you do. An oral contract may still be legally binding, but will be much more difficult to enforce if there is a problem. It is also unlikely to cover many of the simple protections (for both parties) that a typical written building contract will include.

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