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August 09 Edition Cover

July 2018 - OC Law

04 Jul 2018

Taking the plunge on defect claims

Victorian consumers of plumbing services might be surprised to learn that they are protected by the most comprehensive statutory protections in Australia.

The Victorian Building Authority (VBA) requires that plumbers cannot be licensed to carry out any work unless they hold insurance coverage against defective plumbing work, trade practices liability, the non-completion of work as well as public liability insurance.

The General Insurance Order 2002 that applies to these matters (known as the “Ministerial Order”) also provides full coverage for legal and expert costs incurred by a property owner in making a claim against a plumber.

Multiple occupancy dwellings such as apartment buildings can suffer from quite serious plumbing defects, ranging from pan siphoning and water pressure issues, to crushed pipes and installation of faulty metering, through to roof guttering and defective designs and / or installations of downpipes.

There is a strict time limit of six years to bring a claim under these warranty insurance provisions, and consideration and advice should be taken from a lawyer to ascertain the exact date the policy coverage started.

One of the advantages of this warranty system over the other schemes in Australia is that the plumber does not have to be dead, disappeared, insolvent or not practicing anymore before any claim can be made against the insurance policy.

True enough, the insurer has rights to compel the plumber to rectify any defective plumbing work, but that doesn’t limit or stop the claim from being accepted if the plumber refuses to do so.

The interesting part about all this is that many of the insurers that offer these policies seek to limit their exposure by setting an upper limit of $50,000 per apartment or up to $5 million in total. However, the Ministerial Order makes it clear that any monetary limit on the indemnity is prohibited for loss or damage, error of design and the costs of inspecting and repairing the plumbing work.

The Building Act also confirms that the Ministerial Order trumps the terms of any insurance policy, to the extent of any inconsistency.

What this means is that consumers have access to an unlimited liability insurance policy for the rectification of defective plumbing work.

But does all this sound too good to be true? Well, yes. Yes it does. The insurers would certainly never have offered these insurance policies to plumbers in the first place if it thought they were exposed on an unlimited basis.

However, there may be a reason why the Ministerial Order has never been challenged in an open court or tribunal decision, despite the order being around for 20 years. Insurance claims in these matters are mostly settled well before the proceedings are heard in court. So it seems that insurers are reluctant to seek guidance from the court about the application and interpretation of the ministerial guideline.

As always, committees should “plumb to new depths” by seeking advice from a lawyer on these matters and should consider whether they might have a claim against a plumber for either faulty workmanship or design issues.

I would also recommend “fauceting the issue” by engaging a properly qualified forensic plumbing consultant on these issues, as it tends to be a highly specialised field.

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