WA Decision Puts Home Owners Warranty (HOW) Market On Tenterhooks

Following the HIH collapse in 2001, insurers writing HOW policies under the various state Home Building Warranty schemes have routinely sought indemnities and bank guarantees from builders before issuing certificates of insurance. A decision in the Western Australian District Court case of Vero Insurance Ltd v Harden-Jones & Anor has called into question the legality of this practice and suggested insurers may be acting in contravention of the Insurance Act 1973 (Cth) (Insurance Act).

Mr & Mrs Harden-Jones (HJ) were the directors of HBC Pty Ltd (HBC). Before issuing a certificate of HOW insurance for homes being constructed by HBC, the insurer procured a deed of indemnity from each of Mr & Mrs Harden-Jones which covered the insurer for all 'all claims, payments, costs and any other expenses, losses and damages' arising under the HOW policy. When HBC fell into financial difficulties, the insurer paid another builder to complete and rectify works. The insurer then sought to