04 Apr Is Statutory Victorian Plumbers Warranty Cover “Junk Insurance”?
A thoroughly depressing tale about big, fat and ugly insurance companies protecting their financial backsides
at the expense and grief of hard working plumbers who have paid hard earned premiums in good faith.
At Metropolis we see lots of people impacted by defects in plumbing work – and they aren’t just our clients the property owners. The sad fact is that many of those affected are plumbers getting cut adrift or shafted by their own insurance companies.
Victorian plumbers are all required to take out compulsory consumer protection and liability insurance to comply with the Licenced Plumbers General Insurance Order 2002. Typically called the Victorian Plumbers Warranty endorsement, this insurance provides extensive, legislated, statutory protection for both plumbers and consumers. The protection includes as an absolute minimum:
- At least $50,000 for defects protection (but the cost of inspecting, repairing or replacing component parts is in further, unlimited addition to this)
- At least $50,000 for non-completion (of work already paid for by the consumer)
- Unlimited cover for defects arising from errors in design, specification, formula or pattern, or the provision of advice that is incidental to any plumbing work undertaken by the plumber
- At least $5M for public liability e.g injury or damage caused
- At least $5M for completed works liability
- At least $50,000 for Trades Practices Liability
- Unlimited cover for consequential financial losses suffered by the property owner and occupants
- Unlimited cover for legal costs and expenses (provided they are reasonable) for anybody making a claim against the plumber
Given the cover is very comprehensive, you’d expect that if a routine claim arose, the plumbers’ insurer would provide full cover and just deal with it, especially seeing as its Statue Law in Victoria, not some dodgy funeral insurance policy – yes? Unfortunately that’s not how some insurers in the plumbers warranty market see things. All they want to do is either pay virtually nothing or else not pay the claim at all. In many cases that means leaving the plumber personally exposed, holding the baby for what may be a very significant sum of money. It could destroy his business, his family and his career. And the insurance companies just don’t care.
Here are some examples. Note: these are all based on real events we have seen in the past 6 months.
Example 1: A plumber notified his insurer of a significant, genuine claim, paid his excess and asked them to deal with it. The insurer wrote back to him saying:
“This policy has a limit of indemnity of $50,000. This means that we will be unable to provide you with cover for any claims which exceed this amount”.
You can see from the introduction to this article that the statement made by the insurer is false or at best, extremely misleading – there is no blanket ‘limit of indemnity of $50,000’ and to even suggest that is preposterous. The $50,000 they have mentioned is but a potential sublimit of a much bigger policy – a bit like your wife’s $5,000 wedding ring that forms part of your $200,000 Home Contents Insurance cover.
The claim in question was legitimately worth around $100,000. The home owner also had lawyers involved and substantial legal costs had already been accrued along with expert fees. The final bill could have easily been $150,000. With cover supposedly only up to an absolute limit of $50,000 the plumber could have been facing a shortfall of $100,000 personally.
His kind and generous insurance company went on to say:
“Please note that the rectification costs for plumbing defects is in excess of the limit of indemnity.”
Which is a nice way of saying the insurer is about to cut the plumber loose and leave him to personally pay all of the claim over $50,000 – no matter what the insurance is supposed to cover by law.
Example 2: A plumber once again notified his insurer of a significant, genuine claim, paid his excess and asked them to deal with it.
The insurer fumbled and bumbled around with the claim and then appointed a firm of equally fumbling and bumbling Loss Adjusters to supposedly assess the claim, but in reality they also did nothing and weren’t even allowed by the insurer to attend the site to have a look (so as to save the insurance company further costs). A few phone calls and emails were the grand sum of their efforts.
Months went by and nothing eventuated. Suddenly the insurer decided to do something, so they just ignored all of the existing evidence of the significant defects and totally denied the claim to the home owner – who also happened to be a licenced plumber himself, but this time had found himself the victim of defective work done by someone else. The owner understandably went ballistic but the insurance company wouldn’t budge and seemed to have adopted a ‘deny everything’ approach regardless of what the evidence actually was. This left the home owner with only one option – to personally sue the plumber instead. The next thing the plumber knew, a Process Server turned up on his doorstep one evening and in front of his wife and family dumped legal proceedings on him claiming in excess of $100,000 plus legal costs and expenses. The plumber then also had to have the discussion with his supposedly reputable insurer about how there was also allegedly a $50,000 limit on the claim and how the plumber might be paying everything of what’s left over. Very strange also that it was the same insurance company as in example 1.
Example 3: The insurer had agreed to consider a claim for the plumber and deal with it. The VBA had also recently issued a Rectification Notice against the plumber, however he had not complied. The defects were very clear and undeniable. In what the insurer and it’s Loss Adjusters no doubt thought was a potential masterstroke however, the insurer then turned around and denied liability for several of the major defects already confirmed by the VBA and which were also very specifically subject to the legally issued Rectification Notice.
Needless to say the property owner was less than impressed, but here was a supposedly reputable insurance company who hadn’t even been to the site, flat out denying defects confirmed both by the Statutory Government Regulator and an independent expert and which were also subject to an official Rectification Notice issued against the plumber. As they were going to be expensive to fix, it can only be surmised that the insurer tried to deny the defects in question because it simply didn’t want to pay for them and just like in example (2) above, had adopted a ‘deny everything’ approach where it though it could get away with it. How legitimate the defects were, or what other pesky organizations such as the VBA thought simply didn’t come into the picture so far as the insurer was concerned. It was all about trying to save the insurance company money. And this was one of the very biggest insurance companies in Australia with well-known multiple brands, all of them household names.
The owner got sick of this pretty quickly and also engaged lawyers, who promptly sued the plumber personally. Once again a Process Server turned up at the plumbers house one evening and dumped formal legal proceedings on him. If the insurer didn’t pay for some or all of the claim though (as it was already trying to do by defying the VBA Rectification Notice), the plumber would be ordered by the Court to pay the compensation and costs himself, but could then be totally ruined financially if his insurer still refused to act on his policy of insurance and protect him against the claim.
None of these matters have yet been resolved. Not only does this become a disaster for the property owner who is unable to promptly recover the money necessary to fix the defects and damage caused, but it is also an unmitigated disaster for the plumber involved.
None of these examples should give licenced plumbers any confidence that a claim they unfortunately find themselves involved in will actually be dealt with fairly, expeditiously or properly by their own insurance company despite the fact that their compulsory insurance is supposed to be there to protect them if something goes wrong and a claim has to be made.
At the very core of insurance is the duty of “Uberrima fides”, better known as “Utmost Good Faith”. In all of these cases, the insurers pretended there was only limited cover under the policy – when in fact the cover was extensive and should have fully protected all three plumbers. Due to operation of the Insurance Contracts Act 1984 (C’wealth), the duty of Utmost Good Faith sits equally as heavily on the shoulders of the insurance company dealing with a claim, as it does on the plumber when he took out the policy. For the insurer to openly ignore those obligations in its own selfish financial interest and break that good faith is simply not acceptable legally, morally or ethically. Instead it is an absolute disgrace and represents misconduct of the highest order.
If you buy a statutory insurance policy such as the Victorian Plumbers Warranty endorsement – one that has very specific, Government determined cover (and which also by law takes precedence over the insurance policy itself), you should be fully protected by that insurance, not have to face potential financial ruin just because your insurance company decides to take the law into its own hands to try and minimize or totally avoid a payout on a legitimate claim at your personal cost.
In all of the above examples plumbers were hung out to dry and left to be sued personally for damages in a situation where their very valuable insurance policy could potentially be described as ‘junk insurance’ – all while the insurance company claims officers sat in their upholstered ergonomic seats and sipping designer coffee, high in their interstate CBD office towers, patting each other on the back for having done a great job to slice the claims into pieces and in the process, potentially destroying real people’s lives.
All Victorian plumbers should beware of these potential issues and if necessary seek urgent independent assistance to protect their interests should a claim arise and their insurance company start playing this game with either them or their clients.
If you or someone you know has had a bad experience like this and been put at financial risk – either as a claimant or as a plumber, people who matter and who can stop these appalling practices by insurers need to know about it as soon as possible. The best way to do this is to lodge a submission with the Royal Commission into Misconduct in the Banking, Superannuation & Financial Services Industry (which includes insurance companies). Submissions are now actively being sought by the Royal Commission. Their home page is: https://financialservices.royalcommission.gov.au/Pages/default.aspx