Home owners warranty insurance – loss of rent

A claim for loss of rent under the Home Owners Warranty Insurance policy was rejected by the insurance company on the basis that the policy made no provision for payment for loss of rent (although it was not specifically excluded in its exclusion clause).

Remedial building work was carried out on the strata block over a period of almost six months. The extent of the building work was such that it rendered the unit uninhabitable and as a consequence the tenants abandoned the unit bringing the tenancy to an end. This resulted in the unit owner losing rent in excess of $24,000.

In the Home Owners Warranty Insurance policy it was stipulated that the insurance company would pay, subject to the terms of the policy, for loss or damage (where the building company became insolvent) arising from a breach of statutory warranty. There were numerous breaches of statutory warranty by the builder and as a consequence the insurance company approved payment for substantial remedial building work.

Clause 45 of the Home Building Regulation 1997, which relates to limitations on liability and cover of the insurance policy, provides in sub-clause (1)(k)(ix) that the insurance company MAY exclude a claim for loss or damage resulting (inter alia) from:

     ‘consequential loss, including, without limitation, loss of rent or other income, loss of enjoyment, loss of business opportunity, inconvenience or distress’.

In its exclusion clause in the insurance policy the insurance company specifically excluded areas in which it would not pay for loss or damage arising from a breach of statutory warranty, but the policy made no provision for the exclusion of payment for ‘consequently loss, including, without limitation, loss of rent or other income’. Under the regulation it had a discretion to do so.

By not excluding the consequential loss of rent from its obligation to pay for loss or damage arising from a builder’s breach of statutory warranty, it is contended that the insurance company has an obligation to pay the consequential loss of rent.

It seems illogical for the insurance company to deny liability under its policy on the basis that if consequential loss of rent was not specifically included in its policy, then consequential loss of of rent was excluded.

Your views would be welcome.