Government fund may replace leaky building insurance

By ANDREW LAXON

The Government is considering plans for a multimillion-dollar insurance fund to protect the building industry from leaky home lawsuits.

The work is part of a wide-ranging leaky building review to be launched by Commerce Minister Lianne Dalziel next month, with the aim of policy changes by the middle of the year.

Herald inquiries have established that insurance companies are refusing to cover work on leaky buildings - driving several firms under and prompting the Building Research Association (Branz) to ask the Government for help.

Most insurers are already cancelling cover for leaks, rot or mould to building certifiers - who inspect new homes for councils - and building surveyors, who often check homes for buyers.

Home-owners could be affected if no action is taken, because building work could be disrupted and no insurers would be left to pay out on leaky building claims. Branz believes professionals such as builders, developers, architects, engineers, certifiers and surveyors may soon have to provide their own insurance through a levy.

However, it wants Government money or an underwriting commitment - probably running into tens of millions of dollars - to get the fund started.

Yesterday Insurance Council chief executive Chris Ryan confirmed he had been asked this week by officials to investigate the possibility.

He said two of the big issues were whether the industry could afford the premiums and where the Government would find the money to launch the fund. ACC and Earthquake Commission reserves were among the possibilities.

The leaky building insurance problem began last October when Auckland's second-biggest private inspection firm, A1 Certifiers, had to shut down and hand over 2500 jobs to local councils when it could not get any cover. Since then the Herald has learned of at least six smaller certifying and house inspection firms that have been forced to stop work.

The country's biggest firms are effectively banned from inspecting multi-unit homes with the seamless plaster-style finishes blamed for leaks and rot. The exclusions apply retrospectively, so certifiers are no longer covered for many houses they inspected and passed several years ago.

They have also been hit with crippling premium increases. Approved Building Certifiers in Auckland, which has lost 40 per cent of its business, has seen its annual premium soar from $20,000 to $177,000.

Premiums at its rival Nationwide have increased from $50,000 to $270,000, while the value of work covered has shrunk from $10 million to $1 million.

"It's just outrageous," said general manager Ray Kitney. "We don't know whether we can afford it. We're going to try but it might put us under."

Certifiers in Tauranga are particularly concerned because they do all the inspection work in the fast-growing city, whose economy relies heavily on the building industry.

"There's no safety net," said Wayne Wellington, managing director of the largest local firm, Bay Building Certifiers.

Institute of Building Surveyors president Kevin Longman said his 60 members were all losing coverage but were protecting themselves by inserting exclusion clauses in their contracts with customers.

However, Consumers Institute chief executive David Russell said the exclusion attempt was nonsense. Home buyers could take legal action over any defect which they could reasonably have expected an inspector to find.

Mr Ryan said the New Zealand building industry was partly unlucky in that liability insurers around the world were running short of money after exposure to a series of disasters, such as September 11.

Ms Dalziel said she did not want to rule a Government-backed insurance fund in or out ahead of the leaky buildings review, which would include the conclusions of a select committee inquiry due to finish soon.

The review would also consider the way some developers set up a new company for each project to avoid being sued for leaks by the owners - a problem clearly identified in a report on the crisis last year by former State Services Commissioner Don Hunn.

* If you have information about leaking buildings,
email the Herald or fax (09) 373-6421.

Herald feature: Leaky buildings

Related links