Building Legislation Poses Cost Implications

A number of new provisions to the “Ontario Building Code” will come into effect from July this year. These amendments, under Bill-124, will affect builders (including restoration contractors), municipalities, building inspectors and citizens, and by extension, insurers. They will have a visible effect on the time and cost necessary to complete residential building projects.

Bill-124 introduces new qualifications for all parties involved in the build. It introduces mandatory registration for certain classes of designers and private building inspectors, and outlines mandatory qualification guidelines and imposes a requirement for professional indemnity insurance. This is the first time that a common building permit application form (versus the current practice of forms designed by individual municipalities) will exist. The legislation also sets time frames within which decisions must be made relative to the building permit.

Bill 124 also clearly identifies the stages of construction when a building must be inspected by a qualified inspector. It gives municipalities the authority to appoint inspectors (called Registered Code Agencies (RCA)) and allow certain building permit applicants to appoint their own RCA. There are also changes to the fee structure and to the process to adjudicate site plan disputes via the Ontario Municipal Board.

INSURANCE IMPACT

Many municipalities note that the new streamlined application process is actually more complicated than the existing processes, and they therefore expect there to be more administrative work as a result. In addition, the RCAs will need to take examinations in order to achieve qualification, adding to the cost of hiring a qualified inspector.

Since the application and administration process is now far more uniform across municipalities, most buildings will be subject to inspection at each of the seven identified stages of construction (not including the electrical inspection). Depending on the scope of an insurance related rebuild, the cost of additional inspections will be passed on to the insurer – which could add to the cost and time necessary to complete the job, and therefore by extension, add to the additional living expenses component of the claim.

By requiring certification by architects, designers, engineers and other such parties (and requiring them to have appropriate indemnity coverage), it is believed that one of the primary benefits to the provincial government will be the shifting of liability away from the province and the municipalities toward building professionals. The advent of RCAs will further reinforce this liability shift. Insurers will therefore need to reexamine the coverages they offer to building professionals, and the exposures they potentially face during the course of the build.

CONTRACTORS’ IMPACT

Traditionally, it has been the builder responsible for obtaining a building permit and ensuring that all inspections are performed on a timely basis by qualified inspectors. Under the new rules, most builders believe that it will take longer to obtain permits, and that they will need to practice far more due diligence when obtaining the services of designers, engineers and inspectors.

By now, most contractors have met with their respective municipalities in order to understand the changes to the building process. They note that the additional requirements imposed on architects, designers and building inspectors may add to the cost of completing the job. Many contractors have been advised that they are likely qualified to become inspectors themselves, subject to passing the appropriate examinations, but wonder whether they will be in a position to inspect their own building projects. Clarification is required from the ministry regarding any potential conflicts of interest.

Insurers should note that Bill-124 does not require insurance for builders in the institutional, commercial and industrial sector – so commercial carriers should take care in selecting contractors who are both qualified and insured to undertake restoration building projects outside of traditional homeowners’ projects. In addition, all homeowner’s projects that require “material alteration” or repair of a building must have a qualified designer submit plans to the municipality for approval of the building permit. These costs cannot be absorbed by contractors, as they are already working to tight margins and prices generally dictated by the market.

CASH OUTS

Insurers will be pleased that there are no additional duties with respect to design and inspections that would affect their ability to provide “cash outs” to insureds. The new legislation exempts homeowners from qualification and registration requirements if they personally are undertaking a building project in their own home, provided there are no additional dwellings either above or below the home (i.e., multi-story condos).

However, despite the government’s intention of streamlining the building and inspection process, the outcome is likely to result in a more complicated system. Clearly, builders will need time to sort through the changes in responsibilities and requirements. Insurers should therefore continue to exercise due diligence when selecting contractors for their preferred contractor lists, and should insist upon using only those professionals of adequate size and experience to stay abreast of development that could affect the insurer.