Will builders be responsible for product failure under proposed changes to the building act?

MBIE are working on some changes to the Building Act across several different areas. One of those is to include in the Act the regulation of building products and methods.

Current situation

Under the current law building product manufacturers and suppliers are not obligated to provide information about their building products. But if they do provide information, they must ensure it’s accurate. Under consumer protection and commercial law, their goods must be fit for purpose, but this may not apply in all circumstances.

Builders are responsible for making sure they use the products that are specified, and that all the products they use comply with the building code. The Building Act’s implied warranties also require the builder to ensure that all materials will be fit for purpose and new (unless stated otherwise). Andthey are required to remedy defects for 10 years, including defective materials. If the defect can’t be remedied, builders can be required to compensate homeowners for any reduction in value caused by the defect and pay damages.

So, if a product fails, you’re responsible for fixing it. You can (and should) go back to the manufacturer, who must legally have supplied something that is fit for purpose. However, that assumes they’re still trading; that you can get in touch with them (which can be difficult if they’re overseas) and that they acknowledge their responsibility. Often, the best you can expect is to be compensated with replacement product, or for the value of the original materials. This doesn’t account for the extra labour, time and expense involved in ripping out the defective materials, or the cost of other components damaged during this process that will also need replacing.

MBIE’S proposal

As part of regulating building products (which they define as both single components and systems), manufacturers and suppliers would be required to make product information publicly accessible. For example, product information could be provided with the product or be easily accessible on the manufacturers’ website. There would be a minimum level of information they would need to provide, such as their contact details, limitations of use, installation and maintenance requirements. However, they would not have to provide information on “building methods”, which are defined as a specific way of using a building product. Failure to provide the minimum information would be an offence under the Act.

They are also proposing that the Act explicitly makes manufacturers and suppliers ensure their products are fit for purpose. But again, this would not apply to building methods. And if their product fails because it was used in a way different than its intended use, or because of incorrect installation, they would not be responsible.

It will also be law that builders cannot use a different building product or building method to the product or method specified in the building consent without an appropriate variation to the consent.

The responsibility of builders for products would also be clarified. This could include: ‘ensuring that the building products and methods used result in building work that complies with the building code and the products and methods specified in the consent’. This basically means that builders will continue to be responsible for the products used. This doesn’t necessarily even limit your responsibility to products that you’re responsible for supplying but includes all the “products and methods used”.

Insurance for product failure?

Given that builders are responsible if a product they’ve used fails, what insurance is available to protect you?

Public Liability

In general, public liability insurance is not intended to cover product failure. Some policies include an extension to cover “defective workmanship”. For most insurers, this is limited to covering situations where the workmanship has caused physical damage. But because a product may not cause damage simply by being defective this clause would not help you.

Professional Indemnity

While this is intended to cover your liability for mistakes you make in your professional service, this generally excludes claims arising from the supply or installation of products.

10 Year Guarantee with Defects Waiver

If you provide your clients with a 10-year building warranty insurance policy that comes with a “waiver of subrogation” (such as those provided by Builtin and NZ Certified Builders) this is the best way to protect yourself from liability for supplying faulty products. When a homeowner claims on their policy the waiver means the insurer won’t recover the cost of the claim from the builder. It’s important to note there is a “stand down” period, usually one or two years after practical completion, before your waiver protection kicks in. So, if the defects are discovered during that initial period you’re still not covered.

What else?

One of the best ways to manage your liability for defective products is to only work with products that you know and trust, from manufacturers that are well established and have a good reputation, good quality control and good warranty terms. This can be challenging if the architect has specified products that you’re unfamiliar with or have concerns about. In that case it’s important that you speak with the specifier to discuss your concerns.

Under the new proposals (and the current law) designers are responsible to ensure that the building products and methods they specify comply with the building code (provided they are properly installed). So, they have an interest in working with reputable, trusted products too.

IN A NUTSHELL
MBIE is proposing to make product manufacturers responsible for ensuring their products are fit for purpose. The manufacturers will have to supply information to builders to ensure they are used/installed correctly. Regardless of these changes, builders will still be responsible for the products they supply and if they fail, builders will still be responsible for remedying the failure. It's unclear if these changes will mean manufacturers are more likely to contribute to the full cost of fixing defects.

 

by Ben Rickard
Builtin Insurance Advisor

Builtin Insurance are New Zealand’s trade insurance experts. For more information and an instant quote visit builtininsurance.co.nz or contact Ben Rickard at ben@builtin.co.nz or 0800 BUILTIN

This article should not be relied upon as legal advice. The policy wordings from different insurers vary and you should seek your own advice as to the cover provided by your specific insurance policies