EXCLUSIVE: HUNDREDS of small family owned Australian builders are facing extinction because of Builders Warranty Insurance, according to a survey of over 1000 builders by PropertyReview.com.au conducted over the past month.
Builders in both Victoria and NSW are facing the increasing dilemma of not being able to get warranty insurance because thousands don’t meet new exacting insurance companies criteria. Insurance companies take none of the risk on warranty insurance and in fact are ‘illegally’ making builders sign indemnities where they personally face the total risk of the worthless insurance.
Leading lawyers tell PropertyReview.com.au that the home warranty insurance in NSW and Victoria is potentially illegal. According to section 12 of the Insurance Act 1973 a reinsurer must be licensed under the Act otherwise they commit an offence. No builder in Australia is a registered insurance company despite facing 100% of the risk of home warranty insurance.
One leading barrister who did not want to be named told PropertyReview.com.au: “It’s a rort. Governments know it’s at best worthless and at worst illegal, but they do nothing. They seem willing to watch hundreds of small family businesses go out of business.”
She indicated that a class action if successful could be one of the largest payouts in Australian history.
“The losses by builders who have been forced by State governments to sign up as illegal insurers over almost a decade is immense.”
PropertyReview.com.au has exclusively learned that a class action is now brewing against insurance companies, the Victorian and NSW governments with hundreds of builders having signed up for the class action in the past three weeks. Senior barristers and a leading class action law firm have been working on the case secretly for the past six months.
It is expected an application and statement of claim will be filed in the Federal Court early in the New Year with respondents being the NSW and Victorian governments as well as a number of insurance companies. Already more than 250 builders have signed up to the action, many donating thousands of dollars to the cause. Many more are expected to sign before the action is filed.
The majority of the builders are in Victoria and New South Wales where the regime of worthless home warranty insurance rules.
Both consumer advocates and building representatives say that home warranty insurance ruled over by successive Labor governments have forced builders to the wall.
“The only people making money out of the home warranty insurance scheme described by Choice as ‘junk insurance’ are insurance companies, their brokers, and state governments,” one former senior HIA member told PropertyReview.com.au. He did not want to be named due to potential reprisals from insurance companies.
A builder has to die, disappear or become insolvent for a consumer to collect on home warranty insurance.
The NSW Labor government has refused to budge on their worthless home warranty insurance scheme despite the years of complaints from both builders and consumers. The NSW Opposition has pledged to rid NSW of warranty insurance in line with either the Queensland or Tasmanian schemes.
The potential class action poses a real dilemma for the newly elected Baillieu Victorian government, which in its years of Opposition, declared it would rid Victoria of home warranty insurance.
Premier Ted Baillieu, his deputy Peter Ryan have both stated publicly in the past that they would do away with warranty insurance.
However, early representations to senior Victorian government minister Matthew Guy have fallen on deaf ears. Mr. Guy or his advisors have not returned any calls on the matter.
Rumours are rife insurance companies assisted in the funding of the Victorian Coalition at the recent State election to shore up their campaign to ensure the lucrative warranties continue to flood the insurance companies coffers.
Hundreds, possibly thousands, of Victorian builders and their families intend marching on Parliament early in 2011.
Nelson Yap, Editor.