Ontario government pledges ‘further study’ on insurance-type products covering new home warranties

The Ontario government proposes to separate the administrator of the new home warranty program from the regulator of new home builders and vendors, but the ruling Liberals want to further study a recommendation to implement a multi-provider insurance system for new home warranties.

The Ontario New Home Warranties Plan Act currently stipulates that Tarion Warranty Corp administer the act. Tarion is mandated to protect consumers when builders fail to honour their warranty obligations.

If passed into law, Bill 166 would, among other things, “provide for two separate administrative authorities,” Government and Consumer Services Minister Tracy MacCharles said Tuesday in the legislature during debate on second reading.

“One administrative authority would regulate new home builders and vendors, and the other would administer the new home warranty program,” MacCharles added. “We believe that situating the regulatory and warranty-provider functions in two separate administrative authorities would allow each to better focus on delivering its respective mandates. “

The bill incorporates some recommendations of the final report of a Review of the Ontario New Home Warranties Plan Act and the Tarion Warranty Corporation, written by J. Douglas Cunningham, former associate chief justice of the Ontario Superior Court.

Cunningham was also appointed in, 2013, to review the auto insurance claims dispute resolution system. He delivered a report, with 28 recommendations, the following year.

In 2015, Cunningham was appointed to examine and make recommendations regarding Tarion and the new home warranty program, established in 1976.

“Tarion is providing an insurance-type product to homeowners but neither Tarion nor the warranty protection are subject to the oversight that would ordinarily apply to an insurance company delivering a similar insurance product,” Cunningham wrote.

Bill 166 does not propose to make new home warranty coverage an “insurance product,” a spokesperson for the Ontario Government and Consumer Services ministry told Canadian Underwriter Wednesday.

In his report, Cunningham recommended that new home warranty protection be delivered “through a competitive model.”

But Cunningham’s recommendations “dealing with multi-provider insurance-based warranty delivery require further analysis,” the provincial government spokesperson wrote Wednesday in an email to Canadian Underwriter. “The ministry is committed to undertaking further study on the feasibility and impact of implementing these recommendations.”

If passed into law, Bill 166 would repeal the New Home Warranties Plan Act. Among other things, Bill 166 would enact the New Home Construction Licensing Act and the Protection for Owners and Purchasers of New Homes Act.

A clause in the proposed new Protection for Owners and Purchasers of New Homes Act would stipulate that the province’s insurance act would “not apply to the warranty authority and its undertakings in respect of any matter authorized by this Act except as otherwise prescribed.”

Bill 166 also proposes that the rules of the Ontario New Home Warranties and Protection Plan stipulate that a vendor is not allowed to sell or offer to sell a new home unless the vendor has met certain conditions, such as being licensed under the New Home Construction Licensing Act. The vendor would also have to “have received confirmation from the registrar that the new home qualifies for enrolment in the Plan, if construction of the home has not commenced, or that the home has been enrolled in the Plan, if construction of the home has commenced.” Builders would also have to be licensed under the New Home Construction Licensing Act and would have to receive “confirmation from the registrar that the new home has been enrolled in the Plan.”

If passed into law, Bill 166 would “address concerns about the warranty dispute resolution process by setting out, at a high level, a general process for dealing with claims and resolving disputes,” MacCharles said Tuesday. “The proposed legislation would clarify the dispute resolution process to make it easier and fairer for new homeowners if they discover a problem in the construction of their new home. It would clarify the evidence that one must present when making a claim, making the process more user-friendly for consumers.”

In his report released in March, 2017, Cunningham recommended that the condominium specific-provisions of new home warranty coverage be reviewed.

“The role of the condominium board in the warranty claims process for common elements may not always be well understood by a unit owner,” Cunningham stated in the report.

Cunningham noted that condominium corporations must now have a “performance audit of the common elements” completed within a year of registration. These audits are filed performance directly with Tarion, he added.

“The performance audit identifies defects in the common elements and constitutes a claim for warranty purposes,” Cunningham wrote. “A proper performance audit requires timely access to the appropriate supporting documentation, including drawings and plans. Measures should be in place to support that access.”

With Bill 166, “the government’s intent is to address the conflict-of-interest concerns related to multiple roles in Tarion,” MacCharles said Tuesday. “Tarion is currently the regulator of new home builders and vendors and the administrator of Ontario’s new home warranty program as well as the rule-maker and decision-maker. Separating the administrator of the new home warranty program from the new home builder and vendor regulator would help to increase consumer confidence in the warranty program that protects their home.”