Limitation to the letter – clarifying the 10 year long-stop under the HBA

This article was co-authored by Kiesha Mateo, Law Graduate.

Background

This recent decision by the Supreme Court of New South Wales concerns a claim for defective works in a strata development, made under a Residential Building Insurance Policy (Policy).

The central issue was whether a letter sent by the Owners Corporation’s solicitor to the insurer in 2012, and two further letters sent in 2022 constituted claims made within time under the Policy.

The insurer denied liability on the basis that none of the letters amounted to a valid or timely claim under the Policy. Stevenson J agreed, finding that the necessary conditions for a claim had not been met in any of these three instances.

While the original letter in 2012 headed “Notification of Claim” did not qualify as a valid claim under the Policy, the insurer accepted that it constituted as a notification for the purposes of s103BB(3) of the Home Building Act 1989 (NSW) (HBA).

Section 103BB(3) of the HBA allows an insured to make a delayed claim after the policy period, provided that:

1. the loss was properly notified to the insurer during the period of insurance; and
2. the beneficiary diligently pursued the enforcement of the statutory warranty concerned after the loss became apparent.

The insurer conceded that both these conditions were satisfied in relation to the 2012 letter. However, the Policy also required the occurrence of an “Insured Event” before a claim could be made, in this case, the insolvency of the builder. The builder did not become insolvent until 2022.

“Long-stop” limitation period under the HBA

Crucially, s103BC(1) of the HBA imposes a “long-stop” limitation period of 10 years from the date of completion of the works within which a claim must be made.

As the works were completed on 4 September 2008, any claim had to be made by 4 September 2018. The builder’s insolvency, which triggers a valid claim under the policy, occurred outside this limitation period.

Therefore, while the 2012 letter preserved the right to claim in principle, the eventual claim was barred by the statutory limitation period. The 2022 letters, which otherwise constituted valid claims for indemnity, were similarly made out of time.

The owners also argued, unsuccessfully, that rectification works completed in 2021 could extend the 10 year long-stop, pursuant to s92(5) of the HBA, which provides that:

“A contract of insurance that is in force in compliance with this section in relation to residential building work (the original work) done by a person extends to any residential building work done by the person by way of rectification of the original work”.

The Court disagreed, concluding that the 10 year long-stop period began in 2008, upon issuance of the Occupation Certificate, and concluded in 2018. The effect of s92(5) was to extend coverage of the Policy to the rectification works, but not to extend the time in which claims could be made.

Key lessons

This decision highlights the importance to insureds and brokers of early notification of loss under home warranty insurance policies, which may preserve the right to a claim outside the policy period under s103BB(3) of the HBA if a claim cannot be made at that time. However such time extensions will not circumvent the 10 year long-stop provided for in s103BC(1), and further rectification works will not restart the long-stop period.