What is 2-5-10 year home warranty insurance?

Home Warranty Insurance

Requirements for New Homes

To increase consumer protection for new home buyers, the Homeowner Protection Act regulations for residential builder licensing and mandatory, third-party home warranty insurance were implemented on July 1, 1999. As a result, all new homes constructed with building permits applied for on or after July 1, 1999 must be built by residential builders licensed with the Homeowner Protection Office (HPO) and covered by a policy of home warranty insurance. In geographic areas where building permits are not required, licensing and home warranty insurance is required for new home construction commenced on or after July 1, 1999. Home warranty insurance can only be provided by insurance companies that have been approved by the Financial Institutions Commission (ficom) and meet the requirements of the Homeowner Protection Act. See the HPO’s online guide entitled Guide to Home Warranty Insurance in British Columbia for further information. Standards of coverage, commencement dates, exclusions and limits on coverage are now set by government to ensure clarity and a consistent base-level of consumer protection.

 

Minimum Standards of Coverage Required: 2-5-10

Home warranty insurance on new homes includes a minimum of 2 years on labour and materials (some limits apply), 5 years on the building envelope, including water penetration, and 10 years on structure.

 

The 2-year labour and materials coverage is broken down as follows:

 

Any defect in materials and labour:
• 12 months on detached homes and on noncommon property in strata units (includes fee
simple homes)
• 15 months on common property of strata
buildings

Defects in materials and labour related to the delivery and distribution systems (electrical, plumbing, heating ventilation, air conditioning, etc.):
• 24 months for all buildings.

 

Commencement Dates:

Commencement dates on home warranty insurance are:

 

Fee simple (primarily detached dwelling units):
• Custom homes: date of first occupancy or date of first occupancy permit, whichever transpires first.
• Spec. homes: Date of first occupancy or date of transfer of legal title to first owner, whichever transpires first.

Strata homes:
• Strata unit: earliest of date of first occupancy or date of transfer of legal title to first owner.
• Common property: earliest of date of first-unit occupancy in strata building or date of transfer of legal title to first owner in building

 

Home Warranty Insurance Exclusions

The Homeowner Protection Act regulations specify what the home warranty insurance companies can exclude from their policies.

 

General exclusions can include: landscaping; nonresidential detached structures (however, parking structures, recreational and amenity facilities in multi-unit buildings are covered); commercial use areas; roads, curbs and lanes (however, driveways are covered); site grading and surface drainage; the operation of municipal services; septic tanks and fields; and water quality and quantity.

Defect related exclusions can include: normal wear and tear; normal shrinkage of materials from construction; use of new home for non-residential purposes; materials, labour and design supplied by the owner; damage caused by anyone other than the residential builder; damage caused by insects or rodents; failure of an owner to prevent or minimize damage and acts of nature.

Homeowners can search the HPO’s online Residential Construction Performance Guide to help determine whether a possible defect in design, labour or materials in their new home may be covered by home warranty insurance. Visit the HPO website to view this guide.

 

Limits on Coverage

Coverage on claims is as follows:

Fee simple (primarily detached dwelling units):
• The lesser of the first owner’s purchase price or $200,000.

 

Strata homes:
• Strata unit: lesser of the first owner’s purchase price or $100,000.
• Common property: the lesser $100,000 times the number of dwelling units in the building or $2.5 million per building