Under the terms of a 1997 home owners warranty insurance policy, the insurance company approved remedial waterproofing work to be performed to the roof terrace area of the unit, to which the unit owner has exclusive use.

This remedial work was approved by the insurance company on the basis of a term in the policy providing for paying or making good loss or damage resulting from “a breach by your builder of a statutory warranty (as defined in the Act)* in respect of the work”. Section 18B of the Home Building Act relates to implied warranties for residential building work.

As this unit is leased, it was agreed between the unit owner and the tenant that there would be a 50% reduction in rental during the period of the building work because of the considerable inconvenience as a result of access and work. When the unit owner requested the insurance company to compensate for this loss, the insurance company responded by saying that ‘loss of rental’ was excluded from the policy. 

There is no specific provision in the terms of insurance cover excluding payment for ‘loss of rental’ nor is there any specific reference to ‘loss of rental’ in the limitation or exclusion provisions of the insurance policy although there is specific provision for payment for the cost of alternative accommodation, removal and storage cost incurred as a result of a breach of statutory warranty.

It is my view that ‘loss of rental’ is a consequential result of the builder’s breach of implied statutory warranties relating to the work being performed in a proper and workmanlike manner; that all materials used will be good and suitable for the purpose; and that the work would be done in accordance with the law.

Regulation 58(1)(k)(ix) of the Home Building Regulation 2004, which relates to limitations on liability and cover, provides (where relevant) that an insurance contract may contain limitations on liability under the contract in that the contract may exclude a claim for loss or damage resulting from ‘consequential loss, including, without limitation, loss of rent or other income, loss of enjoyment, loss of business opportunity, inconvenience or distress”. In the regulation there is a discretionary limitation or exclusion of liability, not exercised by the insurance company in its policy.

Any views on ‘loss of rental’ under home owners warranty insurance where the policy makes no reference to such issue?

(In the headnote read insurance for insuance).