Everything you need to know about the insurance building industry in Queensland
The insurance building industry is one of the most complicated areas within the building and construction sector in Queensland. This is largely due to inadequacy of the primary legislation that regulates the construction and building industry in Queensland - the Queensland Building and Construction Commission Act (‘QBCC Act’) - specifically addressing insurance building considerations within the sector.
What is the insurance building industry?
The insurance building industry is primarily made up of insurance builders specialising in insurance repairs and works and insurance companies. You will generally only deal with an insurance builder if you have suffered damage to your property and have lodged an insurance claim with your insurance company.
Who are the key players within the insurance building industry?
There are many parties involved within the insurance building industry including:
- Property Owner/Insured
- Insurer (insurance company)
- Tenant (where the property is rented or leased)
- Loss Adjuster
- Building Consultants
- Insurance Builder
- Body Corporate
- Quantity Surveyors
- Insurance Brokers
How does the claims process work within the insurance building industry?
If you have ever had to lodge an insurance claim for damage to your house or property such as in the event of fire, theft or storm, then you may have been involved in this process.
The basic claims process within the insurance building industry involves the following steps:
- The property owner lodges a claim with the insurance company (for example Suncorp).
- The insurance company appoints a loss adjuster to oversee the claims process. This will normally be outsourced to a third party.
- The loss adjuster sometimes engages a building consultant to prepare a scope of works for repairs to the property.
- The loss adjuster sends a scope of works to several insurance builders to quote on the cost of repairs.
- The loss adjuster appoints an insurance builder whose quote is accepted.
- The insurance builder makes contact with the owner to advise of the quote acceptance and to arrange a date to undertake the repair works.
- The insurance builder sends a contract to the owner to authorise repair works on the property.
- The owner pays their insurance excess to the builder (normally before repair works commence).
- The insurance builder undertakes the repair works.
- The owner inspects the completed repair works and signs a certificate of satisfaction/completion.
- The insurance company closes the claims file.
While the above process outlines a simple claims process, insurance building claims can become more complicated in circumstances involving larger properties, such as those involving body corporates, or where significant loss or damage to a property has been sustained. For example, where there is a claim for significant damage, a superintendent may need to be appointed to mediate between the property owner and the builder and external quantity surveyors may be required to audit the payment claims being made by the builder against the insurance company.
What makes the process complicated in Queensland?
In Queensland, the insurance building process has faced challenges due to the inadequacy of the QBCC Act to effectively address specific insurance building considerations.
The QBCC Act was enacted to govern and regulate the building and construction within Queensland with regard to the building of residential and commercial properties, payments and licencing, commercial and residential building contracts, remedies for defective building work and the resolution of building disputes. However, the provisions provide little to no guidance on the insurance building industry specifically apart from the establishment of a compulsory statutory insurance scheme for residential construction work known as the Queensland Home Warranty Scheme in Part 5 of the Act.
However under the QBCC Act, “building work” is defined as including activities that are often undertaken in the insurance building industry, such as:
- the renovation, alteration, extension, improvement or repair of a building;
- any site work (including the construction of retaining structures);
- the preparation of plans or specifications for the performance of building work;
- contract administration carried out by a person in relation to the construction of a building designed by the person;
- fire protection work;
- carrying out site testing and classification in preparation for the erection or construction of a building on the site; and
- carrying out a completed building inspection.
The application of this broad definition to include insurance building matters has led to contradictions in insurance building practice in Queensland (especially in regards to residential work).
Examples of some of the circumstances where the provisions of the QBCC Act have created challenges for the insurance building industry in Queensland are outlined below.
The Act states that payment requests need to be made to the owner of the property, however, it is the insurance company that pays for the work to be undertaken.
- Variations to the scope of works
After the works have commenced, the insurance builder will sometimes need to submit a variation to the work due to unforeseen circumstances. The QBCC Act states that all variations to building works must be approved by the property owner. However, it is the insurance company that has to approve the variation due to the terms of engagement between the insurance builder and the insurance company as well as due to their obligations under the owner’s insurance policy and their responsibility to restore the damage to its pre-loss condition.
This provision means that even though the insurer has approved the variation, the owner must still agree to the variation in writing despite not being the party affected by variation. If the owner does not approve the variation, the insurance builder can face penalties under the QBCC Act.
- Types of contracts used
Most insurance builders use standard boilerplate agreements written by government bodies such as the Queensland Building and Construction Commission or industry bodies such as Master Builders. However, generally these contracts are drafted for the construction of a new building from the ground up, rather than for building works carried out on an existing building. Due to this, many of the terms of these contracts are not suited to the insurance building industry and require the inclusion of a number of special conditions that can cause confusion and ambiguity.
- Number of contracts in force
Even in a basic claims process (as outlined above), there are at least three contracts in force that need to be considered by the relevant parties and can lead to challenges. These include:
- The contract the owner has with the insurance builder;
- The contract the owner has with the insurance company (i.e. the insurance policy); and
- The contract the insurance builder has with the insurance company and loss adjuster.
If the insurance claim is for a large property or strata building, the process can become even more complicated with additional contracts required to govern the relationships with other necessary parties such as superintendents and body corporates.
How can we help?
DSS Law’s Property Law team can assist insurance builders, insurance companies, loss adjusters, property owners, building consultants and body corporates with insurance building matters. Our specialist team has experience advising on all aspects of the insurance building claims process including how to proceed, establishing contracts that protect your interests, or acting on your behalf in relation to defective works or disputes.
DSS Law insight articles are intended to provide commentary and general information. They should not be relied upon as formal legal advice. If you would like specific advice relating to this topic, please contact DSS Law on firstname.lastname@example.org.