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What is Domestic Building insurance and what is it designed to do?
Domestic Building Insurance (DBI) provides cover for homeowners who are building or renovating their home in Victoria. By law, builders are required to purchase DBI on behalf of the homeowner for all domestic building projects over $16,000.
Homeowners sign domestic building contracts with builders to build a new home or modify an existing home where the cost of the work exceeds $16,000. These contracts specify what work is to be done. The contracts, combined with Victorian laws and regulations, specify the standard the work must comply with.
If a builder doesn’t do the work they’ve contracted to do, or doesn’t do it to the required standard, the homeowner needs to resolve any dispute with the builder. If the parties are unable to resolve their dispute amongst themselves, homeowners can seek assistance from Domestic Building Dispute Resolution Victoria. However, if the builder has died, disappeared, become insolvent, or refuses to comply with a court or tribunal order for policies issued since 2014 then – and only then – should you make a DBI claim.
If building work has commenced or is completed at your site, DBI will respond by helping the homeowner find a new builder who will do the work that the original builder should have done. This means that if a home is unfinished, the new builder will finish the home to the original specifications. If a home has defects, the new builder will rectify those defects to the original specifications.
If the work done by the new builder exceeds $16,000 in value, that work will be covered by a new DBI policy so, in the unlikely event that the new builder also dies, disappears or becomes insolvent, the homeowner will be covered under the new policy for the work undertaken by that new builder.
Alternatively, if a homeowner’s builder had just taken a deposit but not started work on site, DBI will cover the refund of your deposit, up to 5% of the value of the domestic building contract.
What is the difference between incomplete and defective work?
If a build is abandoned part way through construction and before an occupancy permit was issued, you may be eligible to make a claim for incomplete work under your DBI policy. It’s normal for builders to rectify work as they go. If items claimed by you would be rectified at a subsequent stage of construction in the ordinary course of building, then those items are deemed incomplete rather than defective work.
For example, if floorboards had marks on them, but were not sanded before work was abandoned, or there was uneveness in your slab prior to the installation of floor coverings, these would be deemed incomplete rather than defective work.
How does the 20% cap on incomplete work function?
When a homeowner signs a domestic building contract, they agree to pay the builder in instalments when milestones are met. This means that, where a builder dies, disappears or becomes insolvent partway through a build, there will be instalments that the homeowner hasn’t yet paid.
When a new builder is appointed to complete the home, the homeowner will still have funds available to pay the new builder equal to the unpaid instalments under the initial building contract, as these funds would have been payable to the original builder if that builder had been able to complete the work. This is why DBI only covers the additional costs (if any) the homeowner faces as a result of the new builder’s contract being more expensive. The amount DBI will pay for incomplete works is capped at 20% of the original contract value under the policy.
How much does the policy cover?
The maximum amount claimable under DBI is $300,000 (for policies issued after 1 July 2014) or $200,000 (for policies issued before 1 July 2014).
What does the policy cover?
The policy covers:
- The refund of the deposit you paid to the builder if no building work had commenced on your site.
- Incomplete works – up to 20% of the original building contract price, inclusive of costs such as temporary fencing, locksmiths, contract works insurance and amendments or extension of the building permit.
- Structural building defects – for up to 6 years after the completion of work or termination of the building contract.
- Non-structural building defects – for up to 2 years after the completion of work or termination of the building contract.
- Other losses – out of pocket expenses such alternative accommodation and storage fees (for up to 60 days) in some circumstances.
Importantly, DBI does not cover consequential losses such as interest on your mortgage, loss of rental income and alternative accommodation of tenants. The policy also expressly excludes certain items from cover, such as mechanical defects and most landscaping, retaining walls and paving.
The policy will only cover items that were part of the works to be completed by the builder under the original domestic building contract.
Do claims for site protection and emergency accommodation count towards the 20% cap on incomplete work?
Reasonable costs for site protection are included within the 20% incomplete works cover. Alternative accommodation is considered separately but included in the aggregate maximum amount payable under the policy ($300,000 for policies issued after 1 July 2014, or $200,000 for policies before this date).
Liability Decisions
VMIA has 90 days to undertake our initial assessment of your claim and determine if we accept your claim in its entirety or in part (known as a liability decision). This decision will detail whether we accept or reject liability for each item you’ve claimed.
What happens if the 90-day timeframe to complete an assessment passes and there has been no assessment or decision?
If you haven’t received a liability decision within the 90-day period, your claim is deemed to be accepted based on the information you have provided.
What is the process to reach a quantum decision once a liability decision has been issued?
VMIA then obtains at least one quote from a builder that we have assessed as having the capacity and capability to complete the work we accepted for your claim as detailed in the Schedule of Works which accompanies our liability decision. We then need to assess that quote and any quotes you have provided.
If my claim is not assessed within 90 days, what happens?
The 90 day timeframe relates to the time VMIA has to reach a liability decision on whether we accept your claim (in full or in part). If we don’t reach a liability decision within 90 days, we will be deemed to have accepted liability for all items that you’ve claimed, but we will still need to reach a quantum decision which details how much we assess your claim as being worth.
There are no prescribed timeframes for any other stage of the claims process apart from the time within which we must make a liability decision. Timeframes for other stages depend on the unique circumstances of each build.
Why can’t people receive a lump sum?
The purpose of DBI is to give homeowners the home that their original builder should have built for them – complete and with defects rectified – subject to policy limits.
Under the DBI policy, VMIA can elect to pay builders directly, and we prefer to do this. This is to ensure that building works are rectified and completed to the specifications in the original building contract and in accordance with legislative requirements.
This protects not only the current owner but any future owner as well.
Please note that if you do not intend to complete and/or rectify building work you are not entitled to any payment under the policy unless your claim is for a deposit refund only.
Quantum Decision
Can you explain the process of arriving at Quantum Decision?
Once we’ve received one or more quote(s) from builders, we’ll assess those quotes (as well as any quotes you’ve provided to us).
This involves assessing whether the quote is complete (i.e. in accordance with the Schedule of Works) and reasonable. A quantum decision is usually issued by VMIA within 14-21 days of us receiving a compliant quote from our builder. The quantum decision will include the name of the builder we nominate to complete your works (known as a “Quantum Decision”).
Can you explain the process of arriving at a Quantum Decision for an owner builder?
We will make our quantum decision based on quotes we’ve obtained from builders and our assessment of how they apply to your situation as an owner builder as owner builders will not incur a builder’s margin.
If you choose to progress completion of your site as an owner builder (which is your choice), you’ll need to apply to the Victorian Building Authority (VBA) for consent and amend the building permit and notify us.
Please be aware there are risks if you choose to proceed with this option. As an owner-builder, you are required to take out DBI if you sell the home within six years of the issue of the occupancy permit. You will also be responsible to any subsequent owner for any defects for a period of at least 10 years, from the date of issue of the occupancy permit, unless you disappear, die or become insolvent during this timeframe.
You should also beware of anyone who contacts you recommending that you sign a building permit as an owner-builder while they organise the building work. Find out more about owner-builder requirements at Consumer Affairs Victoria.
Do I have to use the builder nominated by VMIA?
Homeowners don’t have to use the builder nominated by VMIA, however VMIA has the right to assess a claim and only pay up to what VMIA would have paid the nominated builder. Homeowners must fund any additional costs. Homeowners should be careful before signing with another builder as we have not assessed their capacity and capability to do the work. You should do your due diligence on any builder not nominated by VMIA before signing with them.
When a new builder takes on the build - are they taking over the warranty for the entire build, including work completed by Porter Davis?
Work done by Porter Davis remains covered under the DBI policy purchased by Porter Davis on your behalf. In most instances, the new builder will be required to take out a new domestic building insurance policy on your behalf and any works completed by the new builder will be covered under that policy.
How many days do I have to accept the quantum decision?
The letter we send with your quantum decision explains how long you have to accept our offer to pay for the completion and/or rectification of defects.
Inspections
I’ve noticed additional defects. Can I add these to my claim?
Before lodging a claim, please visually inspect your entire property and note all defects. When lodging your claim, make sure it includes all defects. List each defect individually and describe each one.
If you notice new defects before the inspection, you can add them to your claim, so long as you do so at least two business days before the inspection. This ensures the inspector has a complete list of defects you’re claiming for. Please note that depending on the number and complexity of defects added to your claim after initial lodgement, a scheduled inspection may need to be postponed, which will delay the assessment of your claim.
Our inspectors will not consider additional items raised by you less than two days prior to, or on the day of, the scheduled inspection. If you notice new defects less than two business days before the inspection, or after the inspection has already happened, you’ll l need to lodge a new claim for these defects which may also delay the assessment of your claim.
To ensure that your claim can be processed as quickly as possible, we encourage you to identify each defect you are seeking to claim from the outset and to ensure that you identify and itemise each defect separately.
When an assessor attends the property, should a builder also be there?
The quoting builders and VMIA inspectors can and do inspect separately. This will depend on the complexity of your claim. If there are extensive or complex defects, the builder may want to personally inspect the state of building work at your site to be able to provide more accurate costings. However, this will not be necessary in all instances.
Quotes
When do I provide a quote?
After we have received and reviewed the inspection report we’ll l normally seek at least one quote from a registered builder. At this stage you’re also welcome to provide quotes from registered builders of your choosing. Any quotes should cover all items listed in the Schedule of Works issued as part of our liability decision and should itemise the cost of incomplete and defective works separately. Please confirm with your builder that they have eligibility to purchase a new DBI policy to cover the work at your site. If they are not eligible to purchase DBI, or their quote does not itemise finishing incomplete work and rectifying defects separately, or does not cover all of the items in the Schedule of Works, we will not accept their quote.
Please do not request quotes from builders before we issue you with a Schedule of Works. If you do, it’s likely that the quote will not cover all items listed in the Schedule of Works, meaning you will need to request a new quote from the builder.
How long does it take you to obtain quotes from builders?
In some cases, we can obtain quotes quickly. However, this depends on the complexity of your claim. If a quote is taking time, this is because due diligence is being applied, to ensure your quote aligns with your original Porter Davis contract.
In cases where defects are particularly extensive or complex, it can take more time to find a builder to quote for the works, particularly if specialised knowledge is required.
Payment of claim(s)
Will VMIA pay the costs for us to undertake a private inspection or obtain an expert report?
You don’t need to undertake a private inspection or obtain any expert reports before lodging a claim as we’ll arrange an inspection at our cost. This means that in most instances, these costs will not be considered reasonably necessary and therefore are not reimbursable under the policy.
Can I be reimbursed for rental accommodation? What documents do I need? How is the reimbursement calculated?
Yes, if you’re an owner occupier, you can claim reasonable rental accommodation up to a maximum of 60 days after the original intended completion date or where rectification works to be undertaken reasonably require you to vacate your home for a period of time. Accommodation for tenants and loss of rental income are not covered under DBI. To claim for rental accommodation and/or storage costs, you will need to submit rental agreements and receipts evidencing payment for 60 days after the original intended completion date.
For incomplete work, we will only pay for reasonable accommodation expenses after the original intended completion date, as you always needed to live elsewhere during the original intended construction period.
Can we claim delay damages under the policy, such as penalties payable by the builder if the building isn’t complete by a certain date?
No. These kinds of losses, known as liquidated damages and consequential losses such as interest on your mortgage and loss of rental income are not covered under the DBI policy.
Will the money for my claim be paid to me or the builder?
Under the policy, VMIA can either pay a builder to complete or rectify the works or pay you a financial settlement. In all but exceptional circumstances, VMIA will pay the builder to complete and/or rectify defective works. This is designed to ensure the works are done by a registered builder to protect a subsequent owner of your property if you sell it within six years.
When VMIA makes their Quantum Decision, can the claimant accept the settlement amount and request a payout/payment to a builder of their own choice instead of the nominated builder?
It’s up to VMIA to determine if we accept your chosen builder and the terms and conditions under which we agree to make payment to that builder. If we accept your chosen builder, a revised Release and Authority will be issued to you for signing.
We will only accept builders that are registered and are eligible to purchase DBI to complete and/or rectify the building work at your site.
We have already signed the contract with our new/own builder before VMIA payout. Once VMIA has made the quantum decision, will you make our final payout to our bank account in this instance?
In all but exceptional circumstances, VMIA will pay the completing and/or rectifying builder rather than the owner to ensure the works are completed. Payments will be made to the builder in line with progress payments in the contract you have signed with the builder.
Can I claim rubbish removal, additional rent, locksmith, fencing etc. Is there a way to split the payout for these costs?
Costs such as the removal of rubbish, locksmiths and temporary fencing form part of your claim for incomplete works and are subject to the 20% cap under the policy. Rent and storage costs, (if you are entitled to be reimbursed for these,) are considered “other losses” and can be reimbursed in addition to your claim for incomplete works up to the policy limit. If we have determined in our quantum decision that you are entitled to be reimbursed for any of these expenses, that amount will be paid directly to you.
If VMIA approves our preferred builder, how are payments made? Are they paid in stages and how do we submit invoices?
Upon you signing and returning the Release and Authority document issued by us with our quantum decision and satisfying any conditions contained in that document, VMIA will pay invoices submitted by your builder up to the amount set out in the Release and Authority. Payment will be made in accordance with the schedule of payment under your new contract. Invoices submitted for payment by us are paid within 28 days of submission, which are VMIA’s standard terms of payment. If you choose to engage your own builder rather than using the builder nominated by VMIA, you’ll need to ensure your new builder’s payment terms align with ours or pay your new builder directly upon completion of each stage and seek reimbursement from us as our payment terms are not negotiable.
What checks does VMIA have in place to ensure completion or rectification work is completed without defects before paying for a completed stage?
VMIA is not empowered at law to provide quality assurance on new works carried out at your site. The new building contract covering the completion and/or rectification of defective work is between you and the new builder and therefore needs to be managed by you. Our involvement in the process once we have determined the value of your claim, is limited to paying the new builder the amount agreed in the Release and Authority you signed.
More broadly, the completion or rectification work will be covered by a new contract between you and the completing and/or rectifying builder and will require a new building permit to be issued. As with any domestic building work, a building surveyor will be required to carry out inspections across the construction process to ensure compliance by the builder.
All builders are required to carry out works in accordance with legislation, building standards and the Victorian Building Authority’s Guide to Standards and Tolerances, which means that if works are defective or are in breach of their statutory obligations, builders are required to rectify this.
If we have already paid a builder and completed the works prior to receiving a quantum decision, will you reimburse us directly?
In these circumstances, you’ll need to provide us with receipts, evidence that you have made payments to the new builder and a copy of your new building contract. VMIA will then review the facts and circumstances of the case and your entitlements under the policy, before we make a determination about reimbursing you for any costs incurred by you. You may not be reimbursed for the full amount you have committed to pay the new builder. If you haven’t yet received a quantum decision, please consider these risks carefully before engaging a builder.
We have been advised by our bank that payment can be made direct to them to oversee the works, so they can payout each completed stage of our build. Is this an option?
This may be an option and will be assessed on a case-by-case basis.
Defects
I have noticed additional defects after I have lodged my claim. What do I do?
Before lodging a claim, please visually inspect your entire property and note all defects. When lodging your claim, make sure it includes all defects. List each defect individually and describe each one.
If you notice new defects before the inspection, you can add them to your claim, so long as you do so at least two business days before the inspection. This gives us enough time to make sure the inspector has a complete list of defects you’re claiming for at the time of the inspection. Depending on the number of items added to your claim after the initial lodgement, the inspection might need to be postponed, so we encourage you to itemise all defects from the outset to avoid delays in processing your claim.
If you notice new defects less than two business days before the inspection, or after the inspection has already happened, you will need to lodge a new claim for these defects. Again, depending on the nature and number of defects being claimed, this may delay your initial claim, as we will generally not be able to issue you a quantum assessment until all accepted defects have been identified and costed.
What do I do if the defects are cheaper with your builders’ quote, but the incomplete works are cheaper with another?
The cost of Incomplete works and defects will be considered together during the quotation assessment stage of the claims process. This is because it will usually cost more to engage two different builders to undertake this work. Any builders VMIA engages to provide us with quotes will consider all aspects of the claim in preparing your quote and separately cost incomplete works and defects. Should you engage builders to provide quotes they must do the same. VMIA will not engage multiple builders for the same property.
I’ve noticed new defects after receiving my Quantum Decision. What do I do?
If you discover any additional defects in the work undertaken by your original builder, you will need to lodge a new claim for those defects.
I’ve noticed defects in the work done by the new builder. What do I do?
Any defects in the work of the new builder should be discussed with that builder. They are not covered under your initial DBI policy, but your new builder will in most instances be required to take out a new DBI policy under which you will be entitled to claim if your new builder dies, disappears, becomes insolvent or fails to comply with a court or tribunal order.
VMIA has said an item is not deemed to be a defect. What does this mean?
Not all items that have visual imperfections are defective. For example, if a wall or your slab has cracks but they are only hairline cracks, and within appropriate standards and tolerances as defined by the Victorian Building Authority, then they are not be considered to be defects.
Protecting your site
Can we claim temporary fencing as part of the reasonable costs to secure our site?
Yes, temporary fencing can be claimed as part of your claim for incomplete works. Under your policy and at law, you are required to you take reasonable measures to safeguard existing building works and to secure your site. You can locate service providers offering such protections online. Reasonable costs of doing so are covered by your policy and reimbursed if you upload receipts through the portal.
What do I do if someone tries to enter my site?
Theft, vandalism and damage to property are not covered under DBI. Such items are usually covered under contract works insurance.
We recommend that you secure your site with temporary fencing and protect existing building works. The reasonable costs of doing so are covered by your policy. Issues such as trespassing, vandalism and deliberate damage should be referred to the appropriate authorities, such as the police.
There is mould growing and my frame is deteriorating due to heavy rain. Is this covered? What do I need to do? Do I need to get an additional quote?
Under your policy and at law, you are required to take reasonable steps to physically secure your site. This includes protecting the building work at your site by, for example, wrapping the frame, and not permitting water to collect and accumulate on your site. The reasonable costs to do this will be covered under the policy as part of the costs of completing incomplete works. If you have taken all reasonable steps, and your frame is still damaged, we will assess the item as a potential defect.
Disputing a decision
If I am not happy with my liability/quantum decision and certain items have been rejected, what can I do?
If you don’t agree with our decision as set out in our decision letter sent to you, you have 28 days to request a review of that decision by lodging an appeal with the Victorian and Civil Administrative Tribunal (VCAT). Visit www.vcat.vic.gov.au or call (03) 9628 9999 to find out more.