You recently purchased your newly constructed dream home and have been living in it for a year. You love everything about it, but last week you noticed a small leak in the bathroom skylight. Then this morning when you were moving boxes around in the basement you noticed a large crack in the foundation.
While nobody wants to find themselves in these circumstances, you may hope you have home warranty insurance if you ever do. The question then will be whether your issues are covered, and how you go about obtaining that coverage.
In British Columbia, anyone building a new home is required by law to obtain home warranty insurance under the Homeowner Protection Act. To reinforce this requirement, the act prevents a homeowner from selling or even listing their home on the market for 10 years unless it is covered by home warranty insurance. Each home warranty policy in B.C. must cover defects in materials and labour for two years, defects in the building envelope for five years and structural defects for 10 years.
It is important to understand that not everything that is wrong with the home is covered under home warranty insurance. As with all insurance, the specific policy terms will dictate whether a specific defect or deficiency is covered or not. Often, homeowners are subsequently surprised to discover that the insurance is substantially narrower than they believed. They are also often surprised to discover that the process of getting the insurer to respond to the claim is not as straightforward as they had anticipated.
Insurers have an obligation to respond to claims submitted, but they have no obligation to remedy a defect until they have concluded that the claim falls within coverage. Insurers are entitled to time to investigate the defects, and to raise any and all defences to the claim that they have under the policy or at law. These types of investigations and denials can be a rude surprise to homeowners who believed that the policy provided them with complete peace of mind.
A clear understanding of the policy and the claims process is therefore essential to an owner in evaluating their risks in purchasing a new home.
First, ensure that you review your home warranty insurance policy. While reading the policy may be an unpleasant chore at the time of purchase, in this circumstance the fine print matters. If you do not understand aspects of the policy, make inquiries until you do.
Second, understand the claims process in the policy. Anticipate that you may need to make a claim under the policy and understand how you would do so. Understand what process the insurer will go through in evaluating and approving the claim. Also understand the rights and obligations of the licensed builder under the policy in the event of a claim. Again, if you do not understand aspects of the claims process, make inquiries until you do.
Third, understand your obligations in the event of a defect claim. Generally, in the event of a claim we recommend that you:
- Document the deficiency. Take photos of the damage, make written notes and keep a record of any other information that could support your claim. Maintaining such documentation of the deficiency can be crucial to the success of your claim.
- Do not proceed with a repair to the deficiency until the warranty provider has been provided with a reasonable opportunity to repair the damage. Most home warranty policies will exclude coverage if you proceed with the repairs without allowing the insurer to complete them.
- Take reasonable steps to mitigate any damage that is occurring. If you fail to take such steps, the insurer may deny coverage under the policy.
- If that mitigation requires urgent repairs, ensure that you advise the insurer of the specifics of that urgency.
- If you must proceed with the repairs because of the urgency, provide the insurer with clear notice that you have no choice but to proceed with the repairs and advise the insurer specifically what repairs you are completing. If you proceed with repairs without the insurer’s consent, note that this may be a basis for the insurer to deny coverage.
- If your claim is denied, you have the option to appeal the insurer’s decision. Most insurance providers will have their own process to handle appeals. Make sure you carefully follow that process as outlined in your policy. A failure to follow the appeal process correctly may invalidate your right to any legal remedy against the insurer.
The purpose of mandatory home warranty insurance is to provide an additional safeguard to homeowners. However, home warranty insurance should not be mistaken as a panacea for all things wrong with your new home.
To avoid disappointment later, take the time at purchase to understand what protection the insurance does provide, what defences are available to the insurer and how claims are processed. In the event of a claim, follow the process in the policy, act with care and diligence, and understand that the process is unlikely to deliver an immediate and wholly satisfactory solution.
Norm Streu is associate counsel with the law firm Harper Grey LLP and past chair of the Vancouver Regional Construction Association. Chris Hirst is the managing partner of the law firm Alexander Holburn LLP. This article was prepared with the assistance of Matthew Carabetta, articled student.
