The New South Wales construction industry is facing a critical shift in liability and insurance requirements. Recent changes to the Design and Building Practitioners Act 2020 (DBP Act), combined with deferred professional indemnity (PI) insurance requirements, have created potential gaps that every practitioner needs to understand.
Deferred PI Requirement
The government has deferred the mandatory PI insurance requirement for building practitioners to 30 June 2026. While this gives practitioners more time to comply, it does not reduce exposure under the DBP Act. Without adequate PI coverage, liability for economic loss arising from defective construction or design work could fall directly on the individual or firm.
Expanded Duty of Care
Under section 37 of the DBP Act, the duty to avoid economic loss now:
- Applies to any person who carries out construction work, not just registered building practitioners.
- Covers all buildings, including commercial and mixed-use developments, not only residential properties.
This broad scope means that designers, builders, subcontractors, and even suppliers may face statutory liability for defective work or advice.
Where Current PI Policies Fall Short
Many PI policies are designed for professional services, such as design or consultancy, and include exclusions that create coverage gaps:
- Professional Business Limitation: Policies often only cover work defined as “Professional Business,” excluding hands-on construction work.
- Workmanship & Products Exclusions: Liability for defective materials, installation, or construction is frequently excluded.
- Non-Compliant Materials: Claims involving non-compliant products are typically not covered, even if the Insured provided professional guidance.
- Statutory Duties: Few policies explicitly cover the DBP Act’s statutory duties, leaving practitioners exposed to claims under s 37.
- Subcontractor & Principal Risks: Vicarious liability cover is limited, and subcontractors’ own exposures or principals’ concurrent liabilities may not be insured.
- Mitigation Limitations: Pre-handover rectification often requires insurer consent, potentially delaying urgent repairs.
Key Takeaways
- Coverage gaps are real: Current PI policies may not fully protect practitioners against statutory duties, defective work, or economic loss under the DBP Act.
- Early action is essential: Practitioners should review existing policies, engage with insurers about endorsements, and consider risk management strategies.
- Risk management matters: Documentation, quality control, and clear subcontractor oversight can reduce the likelihood of claims.
- Plan for the future: With mandatory PI insurance taking effect in 2026, ensuring policies align with the DBP Act’s broader obligations is crucial.
The construction landscape is evolving, and the intersection of statutory duties and PI coverage is more important than ever. Proactive planning, careful policy review, and early engagement with insurers can help practitioners protect themselves, and their projects, from significant economic risk.