It is ironic that in attempting to build a home, owners through no fault of their own end up homeless!

Every part of the ‘con-sumer protection strategy’ has been broken for more than 20 years.

Insurance is but one example of the issues with the scheme. For consumers who build or renovate, the Government mandated that they pay for ‘Last Resort’ Builders’ Warranty Insurance. There is no other class of ‘insurance’ operating anywhere in the world like BWI because it is not a typical form of insurance, where one pays a premium to mitigate against risk, with the guarantee of payment if the risk is realised. Owners are forced to pay for what is actually ‘No Resort Insurance’, where 99 per cent of owners have not been able to make a claim, much less get any payout. BWI is ‘non-insurance’, where consumers’ ‘donations’ flow to insurers and brokers.

Introduced in 2002, under the guise of offering consumers limited protection, BWI offers no protection for home owners. In order to trigger this non-insurance, the builder has to die, disappear or become insolvent. Few builders die, fewer disappear only to later be ‘found’ by the insurers. As for insolvency claims, the insurance companies refuse to pay out on genuine claims or offer a pittance of the full entitlement. This scam has proved been a godsend for insurance companies and brokers, the beneficiaries making multi-millions of dollars from consumers’ compulsory donations.

In order to appreciate the magnitude of this swindle, let us look at some statistics.

In 2011, it was revealed that during the previous year, more than 53,000 Victorians had paid an estimated $87.8 million for ‘warranty insurance’ on home building projects. Around $38 million went in premiums, with most of the other $39.8 million gifted to insurance brokers as commissions.

The shocking reality is that from this pool of nearly $88 Million, only three owners managed to make successful insurance claims that year, for a grand payout of $108,476! Lots of money went in, but little was paid out, and consequently the minute claims-loss ratio of 0.12 per cent! So much for ‘warranty insurance’ and a safety net. It is a mega million dollar scam!

The best way to appreciate how this scam rewards insurers is to consider a real story. One such case involves Alex Furman and Lana and Igor Kozak. They engaged a ‘registered builder,’ with CBL Insurance Limited providing the BWI. The building phase was disastrous and after years of heartache, the builder declared himself to be insolvent and the BWI was triggered.

The owners thought this would offer a lifeline, but no! They lodged a claim with CBL in April 2013, providing all the evidence of defects and invoices to substantiate their expenses. CBL accepted liability for defects in May 2013.

Prior to the builder becoming insolvent, the owners discovered many defects and sought advice from Consumer Affairs Victoria (CAV). Several CAV officials informed them that under the Domestic Building Contracts Act, if they were unable to find a builder willing to rectify as in this case, the original ‘builder’ could be paid for rectification. The owners were assured that this was in line with the DBCA!

After lodging their claim with CBL, Alex and the Kozaks provided proof of money paid for materials, rectification works and payments to the builder and trades, and they claimed for work still to be rectified. They answered the many questions put to them by CBL in an endeavour to overcome the hurdles hindering them from achieving a just outcome. When they lodged their claim 16 months ago, the owners were entitled to be paid for all the defects which had been rectified and those still outstanding. At present, a Building Notice is on the property what is built is non-compliant with the Plans.

According to the owners, CBL was provided all the supporting evidence for their genuine claim, $740,000 for defects rectified and around $200,000+ for defects yet to be rectified. However in August 2013, CBL offered a mere $17,500, with a story that the owners had been at fault! But this was false. The ‘offer’ was not based in law and ignored the facts. The owners would not accept the offer as full payment and sent the cheque back to ‘No Risk CBL’; if you do not intend to ever pay out, then there are no risks! To date, CBL has not paid one cent of this legitimate claim!

After CBL offered the paltry payout, blaming the owners for paying the same ‘builder’ for rectification, the owners again contacted CAV. Once more, they spoke to several officials, who confirmed that CBL’s assertions were baseless, and CAV also confirmed that the owners had done nothing wrong and their actions had not jeopardized their genuine right to claim and be paid. In fact, it is unclear as to how this figure was arrived at, and quite apart from the issue of the original builder being paid for rectification works, CBL ignored all the accounts paid by the owners for materials and labour and the amount required to be spent on rectification works.

The owners pleaded for assistance from every quarter – from their local member, Georgie Crozier, who committed to help, but did nothing. Many letters and appeals in person were made to Robert Clark, the ‘junk’ insurance Minister, who gave no response. Then they reached out to Heidi Victoria, Minister for Consumer Affairs, and again got nothing!

After three months of CAV considering the case, in August 2014 the owners were informed that CAV would not pursue CBL. CAV’s position now is that it has four entries (of the owners’ calls) recorded, but that these do not disclose that any advice was given to the owners to make payments for rectification work.

How could CAV only retain half the records? Furthermore, the Acting Director, Phil D’Adamo stated that this was “consistent with CAV’s practice”, which was “never to advise a party to make a payment for goods and services.”

To suggest that CAV does not advise consumers to make payments is totally false. We have countless examples, this writer but one, where CAV has advised owners to pay the builder more money, often regardless of the builder’s entitlement to payment.

Finally, D’Adamo advised Alex, Lana and Igor to go to VCAT. CAV refused to assist them, and in stark contradiction to its advertised slogan: ‘We’re Here To Help!’

Obviously, the owners have no money to pay lawyers to take CBL to VCAT. Not only have they suffered a huge loss and had to meet mortgage payments for years, they are now facing bankruptcy because of CBL’s refusal to pay them and CAV’s decision not to intervene and defend their consumer rights.

CAV’s poor performance is on the public record: falsifying statistics (Victorian Auditor-General’s Office Report on Consumer Protection 2013); ignoring Government directives (Victorian Competition and Efficiency Commission Report on Housing Regulation, 2006); and countless of examples of its failure to take any action on breaches of consumer law. CAV has wide powers, and the director has additional discretionary powers, but anecdotal evidence suggests, as in this case, that CAV has elected not to use any of them.

homepage - theageIn relation to CBL, its insurance business is almost exclusively BWI and it operates in various countries around the world. It is interesting to note this extract from CBL’s website: “For most people, the biggest investment they ever make is the purchase of their own home. The industry is full of examples of home owners who buy their dream home from a builder or developer and then discover defects in the home only after they have taken possession. CBL is able to offer these buyers a Builders Warranty which provides peace of mind when purchasing a new home.”

At the heart of the aforementioned case is discovery of defects!

As CBL’s fortunes have soared over the past decade, building consumer detriment has escalated dramatically.

The story of Alex, Lana and Igor is tragic. They attempted to build a home and now all three are faced with being homeless. Despite CBL’s mantra, for these three innocent victims, their CBL experience has provided no peace of mind. The builder, the building regulator, CBL, CAV and those in their roles as responsible Ministers have all failed these three people and continue to fail home owners. Those we elected to protect and defend consumers’ rights have been captured by the vested interests, their preference to support profits over people. This is why we have a consumer catastrophe, with 250,000-plus Victorian owners harmed every year in Victoria – not a natural disaster, but a man-made disaster!

CBL and CAV were contacted for comment. Unfortunately, neither was willing to speak on the matter and they appeared to have little regard for the plight of these now homeless victims.

By: Anne Paten