Private Members Motion on HIH Insurance

Extract from Hansard

Legislative Council
30 May 2001

Mike Elliott
Leader Australian Democrats
Member of the Legislative Council

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That the Legislative Council urges the South Australian government to provide assistance to persons affected by the collapse of the HIH Insurance Group and, in particular, policyholders or those making a claim against policyholders.

Some weeks ago, I was contacted by a family which has been affected by the collapse of the HIH Group. I will get to their particular story and the effects that the collapse has had upon them in a moment, but first I want to make some general comments. For those who have been trying to follow the HIH saga in the media, I think there has probably been some level of confusion about who is accepting what responsibility. More recently (in fact, I think it was the 21st of this month), Minister Hockey of the federal government made an announcement about a major package of assistance to people who had been affected by the HIH collapse. A couple of days later in the media there was some suggestion that this package was coming unstitched because state governments were not cooperating.

Yesterday I had a telephone conversation with a representative from Minister Hockey's office to seek some clarification in relation to this matter. I was told that the package being offered by the federal government at this stage does not relate to insurance services which are required under state legislation. A number of insurance products will fall into that category, but probably one of the more significant ones is the insurance required of people who are building a home. Because that has been established under state legislation, it is one of those areas that will require, according to the federal government, state government intervention. The federal government has no intention of picking up that insurance product.

The Hon. M.J. ELLIOTT: That is right. We had an argument about who required the insurance and who was supervising the insurance-

The Hon. M.J. ELLIOTT: In fact, we could to and fro for quite some time but I guess, at the end of the day, what we will have to do is look at the impact it has had on real people out there in the community, regardless of who is to blame, and so on. This home insurance product that I discussed, I guess, falls into a number of categories. One of the obvious victims are, I suppose, builders who have perhaps purchased product and then found that they have to reinsure. A number of people are finding that they have to reinsure for a period they have already insured for, and there is the potential for significant costs. It depends upon which insurance products they have but, at the end of the day, there is the potential for some significant cost.

However, I do not think that these people will be the victims most seriously affected. Certainly, the building industry is seeking assistance, and there have been arguments about whether or not the government should remove stamp duties, and those sorts of things, where a new policy has been taken out to replace one that is no longer active because of the collapse of HIH. It would seem to me in the circumstances that that would be a fairly reasonable request, otherwise a person will have paid two lots of stamp duty for the same amount of insurance for, essentially, the same period.

I think that there will be a number of requests and packages and that the government will to and fro on that. I am not suggesting, by any stretch of the imagination, that it is a minor consideration, but it is compared with, I think, one other type of category, and that is where in fact a claim is being made, and where a claim might be very significant-where it is several times the value of a person's salary, for instance, and they stand to lose everything they have and still be left with debt at the end of it. I do not really think, without getting into an argument about who is right or wrong between the federal and state governments, that we can stand by and allow that group to suffer for a long period of time.

I have one particular example that I want to put on the record today, and it might be that, with further exploration, other issues arise from this case. I think it at least gives an indication of the level of exposure that some people might suffer. I refer to a letter that I received from a family in Blackwood. I will not give the family's name (I do not think that that is important at this stage), and I will not name any company other than, obviously, the insurance company. The letter states:

My family and I have fallen victim to the recent provisional liquidation announced of the insurance companies HIH/FAI. This has been a devastating blow to us having spent the last three and a half years and a great deal of our hard-earned savings battling the system to rectify the problems our builders left us with. I have attached a comprehensive guide to our legal battle with the builders, the announcement of the builder's liquidation, the procedure with a claim against the home owner's warranty, and finally the announcement of the liquidation of FAI. Please take the time to read it. We are now left with no alternative but to take this case to as many people with an interest in consumer affairs to see if there can be some sort of assistance provided to us and other claimants in our situation.

Our other issue is also the regulation and prosecution, where applicable, of builders who without care continue to build outside of all current regulations and standards and in our case outside their licence. When we were choosing a builder to build our dream home, we ensured that they were a member of the Master Builders Association of South Australia. Last week my wife rang a senior person within MBA to ask what position they took on the whole issue, and part of their response was to acknowledge a lack of regulation in the industry. When she told them which builder we had been dealing with, their answer was, `You will find that [and I will leave the name out] were no longer members of the Master Builders Association at the time of their liquidation.' This did not give us any consolation, as when we built they were members and actively sought assistance from the association against us.

[The company] were taken to court by every client they had and many of their contractors in their short company life, yet the directors have no financial liability as the company had no assets at the time of liquidation. The directors have suffered little, if any, yet my family are at a loss of nearly $90 000.

In fact, I understand it might be more than that, but I will get to that afterwards. It continues:

How can this be acceptable? I believe they are still involved in the building industry.

This whole saga has taken a heavy toll on myself and every member of my family. We are a young family with only one full-time income and four children aged between 10 and two. All of the money we have spent on experts and solicitors from the beginning is now over $30 000. This has precluded us from doing any work around our house, fencing or landscaping at our new house.

We do not qualify for any legal assistance and have had to pay market rate for representation in this matter.

We signed to build with a member of the Master Builders Association of South Australia, and because of this, we are on the verge of financial ruin. As well as having a house with local council section 84 enforcement notices on, which we are unable to sell to recoup any money at all. We do not have the financial resources to even have the work done to eliminate the enforcement notice.

Is there a `duty of care' on the Master Builders Association of South Australia, who placed our insurance premium with their preferred insurer? The Master Builders Association have in fact recently changed their insurer, but did not advise any existing clients. Why did they change insurer?

Since the liquidation of HIH and FAI we have not received any formal notification from them in relation to this matter. In fact, FAI have advertised in the media that it is business as usual. They are apparently ignoring the many clients who have outstanding claims. We do not consider this appropriate.

I would like to provide you with copies of any documents referred to in the attachment. My wife and I are also very happy to meet with you, and discuss any of the issues further . . . My family and I thank you four your assistance with this matter. . .

· In June 1997, my wife and I signed a building contract for the building of a new house on a previously owned block of land. The builder was. . .

· [The company] was a financial member of the Master Builders Association South Australia and used this association's contract in dealings they had with us.

· Included in this contract and the cost was an allowance for an insurance policy to be written against the failure of the builder. The policy was with FAI General Insurance Company Limited, Builders Warranty Division, in Melbourne.

They give the builder's insurance number, the policy number and the premium they paid for the policy, which was $205. It continues:

· My wife and I had no say in where this policy was written, as it was the preferred insurer of the Master Builders Association South Australia.

· During the construction of our house, no progress payment was ever late or withheld. At the conclusion of the project the final payment was made prior to handover.

· Handover of the house occurred on 8 October 1997. Prior to this a document was prepared which listed a number of jobs, which the builder had not adequately finished but would continue to do so after handover. [A director of the company] and myself signed this document.

· After handover, it became impossible to contact the builder to discuss an ever-increasing number of problems which arose during the standard three month maintenance period. They ignored us after we had made the final payment

· As a result of being ignored by [the building company] we commissioned a report on our house by the Timber Development Association of South Australia Inc. in January 1998. . . . a technical director, prepared this report. The report was eight typed pages in length and outlined many serious defects in work and standards that existed in our new house. A copy of this report was sent to the builder.

· [The building company] still continued to ignore us, after many letters where written to them outlining defects that were occurring in the house.

· In February or March of 1998, we placed this matter in the hands of solicitors. . .

· In March 1998, a report was commissioned to further identify defective work and standards in our house . [A consultant] undertook this report. His initial report consisted of 15 typed pages outlining further defects in our house. He also subsequently prepared an addendum report as more defects came to appear over time. [The building company] were supplied a copy of this report.

· On 11 September 1998 an inspection of our house was undertaken by an independent building consultant appointed by. . . of the Adelaide Magistrates Court. . . . undertook this inspection and prepared a report for the court. His report is highly critical of the builder and supportive of our experts.

· On 28 October 1998 the City of Onkaparinga (our local council) issued an order against me for defects in our house. This order was a section 84 enforcement notice. This notice related to the most serious defects in our house, even to the demolition of part of the structure. This notice prevents us from selling our house until it is complied with.

· A further report was commissioned to have an expert prepare a report on the cost of all the rectification work, as outlined in the reports of the Timber Development Association of South Australia and the SA building consultants. An expert in this field. . . prepared this report. The final cost contained in this report was $52 740. Note this figure was at the time of April 1999 and does not include GST.

· Legal action was commenced against [ the building company] after repeated attempts at conciliation. This commenced in the Adelaide Magistrates Court but progressed to the District Court of South Australia, due to the amount of our claim exceeding the limits of the Magistrates Court's authority. Regardless of the cost of the claim, it could have been dealt with in the lower court with the consent of [the building company], they denied this opportunity.

· Initially [the building company] was legally represented but dismissed the solicitors a short time into the action in the Magistrates Court. They now acted on their own behalf, and as a result did not incur any legal costs. Our expert and legal costs continued to mount, as [the building company] did not appear at many court hearings, further delaying the proceedings and costing us more money.

· A trial was commenced in the District Court of South Australia in January 2000. We were represented by a barrister (as is required) and an instructing solicitor. [The building company] continued to represent themselves. By this time our legal costs were having a severe effect on the financial viability of my family as we had to lodge a large fee in trust prior to the trial. Barristers are extremely expensive to retain.

· After four days of the trial, where no witnesses were called because of the delaying antics of [the building company], they finally conceded that our evidence was overwhelming and consented to orders being made in relation to the rectification of work on our house and the payment of $23 000 of our costs.

· This order was made by Judge Smith of the South Australian District Court on 13 January 2000.

· Contained in this order were certain time frames that compelled [the building company] to undertake specific tasks and lodge certain moneys in trust. All of these conditions of the order were ignored, resulting in us having to incur further legal costs to enforce the order.

· A `Statutory Demand' was subsequently served on [the building company] due to their failure to comply with the consented order of the District Court.

· In March 2000, [the building company] commenced a legal action against us in the Supreme Court of South Australia. [The building company] sought an application to set aside the statutory demand. A judge of the Supreme Court subsequently ruled in our favour.

· On 19 May 2000 my solicitors wrote to FAI General Insurance in Melbourne to advise them of the District Court order we had secured against [the building company] and noting our intention to subsequently make a claim against FAI if [the building company] were insolvent or placed in liquidation.

· On 6 June 2000, as a result of a vote by creditors, [the building company] was placed into liquidation . . . . was appointed as the liquidator of the company. From this time to now, the creditors of [the building company] have not received any advice from the liquidator as to the status of his investigation.

· On 8 June 2000 my solicitor. . . wrote to FAI General Insurance in Melbourne, advising them of. . .

· In July 2000 the claim was lodged with FAI General Insurance, based on the contents of the order made by Judge Smith in the District Court of South Australia on 13 January 2000. Our total claim was for approximately $78 000.

· After this, a number of letters were exchanged between our solicitors and the firm representing FAI in Adelaide . . . Generally these dealt with matters of clarification of certain aspects of our claim.

· On 24 October 2000. . . undertook an inspection of our house on behalf of FAI Insurance. His total inspection lasted only 90 minutes, with him failing to have a copy of our claim and not bothering to inspect some items relating to our claim.

· On 7 January 2001 my solicitors received a letter from [the solicitors] representing FAI. At this time they acknowledged our claim and offered a cash settlement of $38 000 less $ 400 policy deductable. [A representative of FAI] compiled the costings contained in this response after his short inspection. [This person] is not an expert in the area of costing.

· On 16 February, FAI were advised that their offer was insufficient, given the expert costing we provided, against the estimate provided by [FAI's representative]. No further correspondence of significance has been had with FAI after this time.

· In March 2001, media reports indicated that HIH and FAI were placed into liquidation, as a result of massive debts.

· Our claim is still outstanding and we have been advised by the liquidator. . . that we will be very fortunate to receive any monies as the result of our claim, and if we do it may take years to resolve.

· We believe that claims have been settled by FAI that were lodged after they received ours, some specifically related to projects built by [the same building company].

This is just one example, which I think illustrates that, aside from the more obvious victims of the insurance company's falling over-that is, the people who hold a policy and have to renew it-the problems that those sorts of people face are minor compared with those who are trying to make a claim against the insurance company-and some of those claims are quite significant.

This also demonstrates that by the time you make a claim against the insurance company you may have been in deep financial stress for a number of years. It is not helpful at this stage for the government to say: we are talking with the federal government and looking at what the other state governments are doing, and we are considering our position. I know that it will take some time for the government to be able to fully resolve this matter-indeed, there may be the need to spend some time considering it-but when you have people who are on the threshold of bankruptcy through no fault of their own because there has been a failure in the system-let us not have an argument now about whether the federal government or the state government is to blame-I believe there is room for some compassion and reasonableness.

I ask members to consider my motion, which is very broad. It simply urges the South Australian government to provide assistance to persons who have been affected. I have not suggested that there be immediate restitution in respect of all claims or anything like that, but it seems to me that it is possible for the government to establish a fund that would be capable of giving at least some level of reasonable assistance to some of these more serious cases to ensure that what is already an extremely precarious financial position is not allowed to deteriorate further and that at least they can see some ray of hope in the future.

At this stage, all these people are waiting for is resolution from the liquidators. That may take many years and, even if money does become available, we have no idea how much it will be. I think that is an untenable and unreasonable position in which to leave anyone. This is a single income family with four young children. They are in their new house, but the debts are worth more than the house itself and they cannot sell it because it has an order against it. How they can live like that for a couple of years, go through what they have been through and now have $30 000 of legal costs as well, I do not know.

I do not think it is reasonable that, at this point, the government should say that it is going to consult and try to encourage the federal government to do X, Y or Z, see what the other states are doing and further consider the position. I understand why it might want to do that in relation to the smaller policies that do not have claims against them-there might be time to come to a final resolution in terms of those-but it must be possible for a government to say, `Let's look at these sorts of cases.' At the end of the day, these claims will not break the state government's or anyone else's bank but they are having an impact on individuals and families. I think it would be reasonable for the government to provide assistance to these people even if, in the first instance, as I said, it is not full restitution immediately. At least give them some prospect that things will not continue to get worse so that they can see a ray of hope, a ray of light for the future. I encourage all members to support the motion.