In Enpresionante Pty Ltd v Victorian Managed Insurance Authority (Building and Property) [2024] VCAT 1054, the Tribunal was required to determine whether a claim on VMIA policies by a building owner was characterised as being for loss resulting from defective building work by an insolvent builder (which would be covered by the policy) or was, in truth, a claim for loss due to the owner’s default under a financing arrangement (which would not be covered by the policy).

The facts were that the owner sought to develop three townhouses, which were to be built by a builder and financed with a loan. After the owner defaulted on its loan, the financier became a mortgagee in possession. The original builder’s work was defective and incomplete, so the financier appointed a new builder and eventually sold the townhouses at a loss of over $700,000.  The owner (via its liquidator) made a claim on the VMIA policies for what it contended was loss of about $500,000 from defective building work by the original builder. The VMIA refused to grant indemnity, asserting that the proximate cause of the owner’s loss was its default under its finance arrangement, and not defective building work.

In a careful decision, applying Bellgrove v Eldridge and Tabcorp Holdings v Bowen Investments, the Tribunal found that the owner had suffered loss at the time the builder performed defective work and the builder was then immediately liable to the owner. ‘The Builder remained liable to the applicant for damages, and its subsequent insolvency simply enlivened the right of the [owner] to indemnity under the Policy’. The financier’s taking possession, rectifying the works and selling the townhouses at a loss did not make good the owner’s loss or preclude the owner’s right to indemnity under the policy.

In October 2024, the Victorian Government announced that domestic building insurance coverage will be expanded (likely by variation to the Ministerial Order) to respond to builders’ non-compliance with a rectification order by the new Building and Plumbing Commission (the regulator formerly known as the VBA). Which may be a portent of more reviews of VMIA determinations in VCAT.
 

Ben Whitten and James B Waters

Liability limited by a scheme approved under professional standards legislation