Whether the Scheme Member was correct in excluding a claim made under a Guarantee, in relation to a building dispute claim. Complaint upheld


The Customer entered into a contract with a builder for the construction of a new dwelling.

Toward the end of the construction, the Customer raised with the builder a number of defects which the Customer considered required remediation. That remediation work was not undertaken, or not completed to the Customers satisfaction.

The Customer lodged a claim with the Scheme Member, an insurer, who had provided the guarantees with respect to the builders work.

The claim was declined citing an exclusion of liability clause for claims where there is a dispute between the builder and building owner. The Customer pursued a complaint via the Scheme Members internal complaints process, but ultimately the parties could not agree on important matters. Therefore the Customer brought the complaint to FDRS.

FDRS undertook a conciliation of the dispute, which did not result in settlement, and therefore the matter was considered by a scheme adjudicator.


The question the FDRS adjudicator had to determine, was whether the Scheme Member was correct in declining to consider the Customers claim, on the basis of a clause excluding liability arising within the guarantee, when the subject of the dispute relates to a contractual matter between the customer and builder.

Importantly, the relevant clause was limited to the extent that if the subject of the dispute would otherwise fall within circumstances which are “specifically covered” under the guarantee, then the exclusion would not apply. The adjudicator interpreted “specifically covered” circumstances to be those which fall within the ‘coverage’ section of the guarantee.

In the adjudicator's view, the way the clause was worded, made it largely ineffectual. That is because if the subject of the complaint would fall within any of ‘coverage’ circumstances, then the fact of a contractual dispute would not be of any relevance, because the exclusion could not apply.

On the evidence available the adjudicator found the claim would fall within the ‘coverage’ circumstances, in relation to both ‘non-completion’, and ‘defects’.

It was considered that the Scheme Member had misinterpreted the circumstances in which a claim could be considered within the guarantee. It was also pointed out that guarantee provides security to a customer against a default by a builder of the builder’s obligations toward the customer.

The adjudicator also made the observation that it is difficult to contemplate circumstances in which any claim could be made to the Scheme Member by a customer which would not be a contractual dispute. It must be the case that any claim will have at it’s heart, a view from the customer that they have not received the building or services which they believe they had contracted with the builder to receive. That is a contractual dispute.

Proposed Decision

The adjudicator found that the claim was not excluded from consideration, and directed the Scheme Member to investigate the Customer’s claim, and issue a decision in due course with respect to any relief which may be available under the guarantee.

The Customer advised FDRS that the proposed decision was accepted. FDRS did not receive any further comment from the Scheme Member.

Final Decision

Given that the Customer accepted the proposed decision, and as there was no further information presented which suggests the proposed decision should not stand, the proposed decision accordingly became the final decision in this complaint.