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Saturday, February 1, 2020

what is warranty ? - NZ trouble for Builder's warranty !!

In English language (as could be in every other language) – a word can have multiple meaning depending on the context and usage !

*Warranty*  (noun) -  a written guarantee, issued to the purchaser of an article by its manufacturer, promising to repair or replace it if necessary within a specified period of time.

When it comes to purchasing a Mobile / kitchen equipment / TV / Fridge / washing machine / Camera and the like – from an authorized dealer or from a grey market – the first difference is that of ‘manufacturer’s warranty’ ie., backing of the seller / manufacturer to make good defects free of cost within a specified time. Though it sounds attractive, it comes with too many strings. Warranties usually have exceptions that limit the conditions in which a manufacturer will be obligated to rectify a problem. There would be time limitation as also other fringe limitations such as handling by some unauthorized persons / damage / breakage and the like.  Further the warranty could be limited to the parts arising out of defective workmanship and not to labour or any other ensuing damages.  

Besides standard warranties, there are extended warranties that the dealers make you buy enticing you with so called benefits. These could be for items which are not covered in original warranty or for time extension beyond the original warranty, provided such extended warranty is availed at inception. 

In contract law, a warranty is a promise which is not a condition of the contract or an innominate term:  it is a term "not going to the root of the contract", and  which only entitles the innocent party to damages if it is breached. A warranty is not a guarantee. It is a mere promise. A warranty is a term of a contract.  A warranty may be express or implied. An express warranty is expressly stated (typically, written); whether or not a term will be implied into a contract depends on the particular contract law of the country in question.

The meaning of warranty in Insurance contract is significant – often we hear that warranties are to be complied with strictly irrespective whether they have a bearing to a loss ornot.  A warranty in an insurance policy is a promise by the insured party that statements affecting the validity of the contract are true. There could be warranties imposing certain factors based on which the contract itself would stand – for instance pre-existing conditions in a  Health Insurance policy.  It the warranty is not complied with, the contract itself becomes void.

The mother of all Insurances ‘Marine Insurance’ has an enactment and well defined warranties.  The MI Act defines that a warranty,  means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.  According to the provisions of the Act - warranty may be express or implied.  The warranty as specified herein, must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

However, non-compliance of a warranty is excused when by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, or when compliance with the warranty is rendered unlawful by any subsequent law. A breach of warranty may be waived by the insurer.

There are Express warranties, which may be in any form of words from which the intention to warrant is to be inferred.  Such warranties are contained in the Policy document or in any document incorporated by reference into the policy. There are some implied warranties but they would not be implied in certain circumstances, say as to the nationality of a ship or that such nationality shall not be changed during the risk period.  Some warranty (or their nature) might change depending on the type of policy.  For example,  In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.  However, in  a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.  In a policy on goods or other moveables there is no implied warranty that the goods or moveables are seaworthy.

In every Marine policy, there is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner. There are more types of warranties / implied conditions on voyage, commencement, alteration, delay, deviation, sailing and more. With this lengthy background, now read this interesting article on ‘warranty’ – one pertaining to ‘building warranty’ as read in titled “BuiltIn Insurance loses underwriter for its building warranty, but finds replacement”

                           A builders warranty protects new home owners in case their building firm collapses during construction and the 10 year period afterwards when builders must fix defects on a new home or major alteration. A third building warranty has been hampered by its insurer pulling out of the global market. However, the provider of the warranty, BuiltIn Insurance, says it has found another backer and is also extending coverage to other builders who have lost theirs. BuiltIn holds about 2000 warranties, and its customers include the 250-strong Combined Building Supplies Co-operative.

It is stated that building guarantees had to be suspended after global insurer pulled out – this caused the home owners researching on the  builders after insurer removed element of its 10-year guarantee cover.   It is stated that BuiltIn follows Certified Builders and Stamford Insurance who all had warranties backed by the underwriter, a subsidiary of Lloyds of London. Certified Builders, which loses its coverage this week, has not been able to find an insurer so far. Stamford, which lost its warranty on December 31, says it is close to announcing a replacement backer. Both organisations stressed that existing policies would be honoured. The fresh difficulties finding insurance have amplified calls for the Government to make building warranties compulsory.

Local building owners with potentially flammable building cladding are being urged to join a class action seeking compensation from manufacturers. After CBL Insurance's liquidation last year, the only providers consumers have are BuiltIn, several group builders and the Registered Master Builder guarantee, which is provided by one of its subsidiaries. Master Builder chief executive David Kelly said his organisation supported a mandatory warranty but felt consumers should still have options. "Our position is that if you're building a new home or a substantial renovation, you should get a guarantee. We think that's just common sense." Other factors to consider included the strength of the backer.

"I think the critical thing is to look at who's providing the guarantees, are they substantial, are they solid? In our case, we voluntarily, through our guarantee, measure ourselves against Reserve Bank requirements." Certified Builders spokesman Jason McClintock also supported the mandatory warranty idea, saying the current situation left a big hole in the market. "We do need to fill this hole to better protect New Zealand consumers." The Ministry of Building, Innovation and Employment (MBIE)  says the mandatory warranty idea is "still under active consideration" and a decision was due later this year.  Master Builders chief executive David Kelly says consumers should have a range of choices when it comes to building warranties. However, after ministry consulted the industry last year, there were concerns that New Zealand might struggle to find an insurer big enough to take on demand.

Rickard doubted New Zealand's leaky buildings legacy were a detraction, but he said the number of underwriters in the construction sector was shrinking. "The fact we've managed to find a small niche player, they don't have unlimited capacity. If the market tripled, they would have to get more capital, there would be some fairly deep digging to find the capacity.  Rickard said it was not clear why insurers were reluctant to insure the construction sector, but he had heard of concerns about exposure to flammable cladding after London's Grenfell Tower fire. "There's just a lack of enthusiasm to do this kind of thing in construction around the world and I think if there was a player who was keen, New Zealand would be as attractive as anywhere else."

Interesting !

With regards – S. Sampathkumar
27th Jan 2020
PS: with liberal inputs taken from NZ news paper

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