By Stephen Aroney, Partner and Leon Chen, Associate 

The Supreme Court of New South Wales has affirmed the strict operation of the 10 year longstop limitation (Longstop) under section 103BC(1) of the Home Building Act 1989 (NSW) (HBA), which prevents home building warranty insurance claims from being made against insurers if not made within 10 years after the completion of the insured works.

Background

In this matter, a claim was made by the Owners Corporation of a 98 unit residential strata scheme located in Parklea, New South Wales (the Property), against the Property’s builder and developer for breaches of the statutory warranty prescribed by the HBA.

While these proceedings were commenced by the Owners Corporation in 2013 against the builder and the developer (and written notification of a potential claim was sent on 21 February 2012 to builder’s insurer, Lumley, (the Insurer)), the Owners Corporation entered into defect settlement agreements were entered into in 2017 and 2021 for the builder to carry out rectification works at the Property. However, when both the builder and the developer went into administration in 2022, the Owners Corporation lodged its claim with the Insurer which was denied due to the Longstop as the Occupation Certificate for the building was issued on 4 September 2008. The Insurer, represented by Mills Oakley, was then joined to the proceedings as the third defendant and a claim for $13 million in defect rectification costs was brought.

The issues before the Court

The issues before the Court were that; the builder’s warranty insurance policy would only respond if the builder was insolvent, had died or had disappeared (the Insured Event). Only then, could a claim be validly made under the builder’s policy prior to the statutory Longstop.

The Court was asked to determine the following three separate questions:

1. Was the letter sent by the Owners Corporation’s solicitor to the Insurer on 21 February 2012 a valid claim under the Policy?
2. Was the claim made in the letter sent on 25 January 2022 (after the builder had become insolvent) within time under the Policy?
3. Was the claim made in the letter sent on 28 June 2022 (under the rectification agreements) within time under the Policy?

To unpack these questions further, Justice Stevenson was, in effect, being asked to determine:

1. Whether a notification, in the form of a letter sent by the Owners Corporation’s solicitor to the Insurer, constituted a claim being made under a policy?
2. Whether a claim on the builder’s insurer could be made after the Longstop had taken effect?
3. If circumstances such as an occupation certificate being invalidly issued or rectification works being carried out by the builder would extend or restart when the Longstop takes effect?

Justice Stevenson of the New South Wales Supreme Court answered “no” to all the above.

Interpretation of the policy

The Court held that the builder’s policy in these proceedings only responded if an “Insured Event” occurred during the policy’s period of coverage. In these circumstances, the notification issued by the Owners Corporation’s solicitor to the Insurer could not have been a valid claim as the builder was not insolvent at the time.

Notification of a claim may amount to a claim

While the Insurer conceded that the 2012 letter might be a notification of a delayed claim for the purposes of section 103BB(3) of the HBA, it did not affect the fact that the Policy trigger, being the builder’s insolvency, had not occurred and therefore could not be elevated to be a claim.

Confirmation that defective certificates and rectification agreements do not extend the Longstop

With the above in mind, the Court’s focus turned to whether the two letters issued after an Insured Event occurred, being the builder’s insolvency, were time-barred by virtue of the Longstop. The Court confirmed that the building works were completed on 4 September 2008, upon the issuance of the occupation certificate. This meant it was impossible for the Owners Corporation to have made a valid claim under the Policy, as the trigger of the Policy, being the builder’s insolvency, occurred years after the Longstop.

The Owners Corporation’s solicitors argued that the Longstop should be extended or restarted on two grounds. Firstly, that the insured building works could not be considered “complete” due to the allegedly invalid issuance of the occupation certificate (OC) as there were unauthorised works carried out by the builder. Secondly, that the builder’s agreement to return and rectify defects in 2017 and 2021 meant the insured works were only “completed” at that later time, such that the Owners Corporation’s claims could have been said to have been lodged within 2 or 6 years per section 92(5) of the HBA and well before the Longstop took effect.

These arguments were firmly rejected by Justice Stevenson, who held that neither the alleged invalidity of the occupation certificate nor the builder’s return in 2017 or 2021 to undertake rectification works had any bearing on when the Longstop took effect and noted the risks associated with accepting the Owners Corporation’s argument which would potentially extend the longstop provision and keep an insurer on risk for in excess of 10 years which would be contrary to the intention of the Longstop. The Court reaffirmed that the date of completion, which was the issuance of the occupation certificate on 4 September 2008, meant that the Longstop took effect on 4 September 2018 (being 10 years after completion).

Conclusion

Although the Owners Corporation has since appealed the decision (which is being defended by the Insurer), the ruling stands among a growing body of authorities in New South Wales that the Longstop limitation is absolute. This provides insurers with the comfort and certainty that claims under home warranty insurance must be made within ten years of the completion date, and the Courts are not willing or easily convinced to not extend or reset that period based on later events or disputed documents.