For 10-year Structural Defects the builder’s liability is transferred to the Warranty Insurer (Insurer) via the insurance backing documented in the Insurance Policy and the Member Proposal & Agreement (MP&A). When it comes to the one and two year coverages, the insurance backing acts as a guarantee that should the builder be unwilling or unable to fulfill their warranty obligations, the terms of the warranty will still be met by the Insurer.
Furthermore, the MP&A states the builder agrees to indemnify the Insurer for any damages incurred in performing the builder’s obligations. At first blush, it appears all the benefits of an insurance-backed warranty are the homeowners in the first two years of the warranty contract. After all, the protection provided by the insurance backing is designed to support the homeowner in the event the builder defaults on their warranty responsibilities.
How does the builder benefit from providing an insurance-backed warranty?
While the most tangible aspects seem to favor the homeowner, there are more abstract characteristics which benefit the builder. First and foremost, the possibility of providing an express, insurance-backed warranty is a valuable sales tool for a builder for a number of reasons. The insurance-backed product tells the homeowner that their warranty benefits do not terminate should the builder be unable to fulfill their obligations, for whatever reason. Without a warranty, if a builder proves unable to meet their obligations, even because of a “legitimate” reason like going out of business, the homeowner is often left “holding the bag,” with little or no recourse in having their concerns addressed. The Warranty eliminates this risk, and assures the homeowner if the builder encounters unforeseen circumstances which inhibit their ability to perform, the Insurer will assume that role. The builder can also assure the homeowner structural concerns will be addressed for ten years, and they are providing a warranty program that has been HUD-approved since 1983.
Benefits to the Builder
An additional benefit to the builder, one that is not often considered, is provided in the event the builder does default and is particularly beneficial to builders who want to continue to build. Should the Insurer have to adjust a claim and address the concerns of the homeowner, the Insurer and indeed 2-10 HBW as a whole can assist in averting blame which might otherwise land squarely on the builder.
Consider this – if a workmanship claim makes it to the Insurer, it is because something has gone wrong somewhere with the builder, and there is likely a level of animosity toward the builder being expressed by the homeowner.
Without an insurance-backed warranty, there is likely nothing being done. However with the Insurer, though there may be animosity, the homeowner’s concerns are being directly addressed. This service allows the Insurer to “control the message” to a certain extent, and possibly deflect some of that anger away from the builder. One can see why this could be valuable to a builder who wants to continue building homes. Unlike showbiz, when it comes to construction, not all publicity is good publicity. If a homeowner can remain focused on what is being done for them, further hostility and possible action against the builder might be mitigated.