Victoria follows Queensland and NSW on PI insurance for Building Consultants

The Victorian Government has lowered the insurance requirements for building professionals operating in this State.

In effect, it means that the requirement on Building Practitioner’s to have NO exclusion in respect of non-conforming building materials has been done away with.

What disappoints me is that some insurers were taking, what to me was, a very fair approach and only excluding known non-conforming building materials.

With no professional indemnity insurer, understandably, offering coverage without some exclusion in respect of non-conforming building materials, a stale mate was reached where licences for building professionals could not be obtained.

While the change in the insurance requirements does allow building professionals to obtain a licence to operate, it does mean that the building professionals will have an uninsured exposure moving forward for claims against them, and this includes defence costs even when they are completely blameless, in any claim involving building materials which are non-conforming or the third party claim where non-conforming.

With so many types of non-conforming building materials having come into Australia, this to me is a significant risk to be carrying.

This, of course, creates a risk to the building professional. As I explain to business owners and professionals, there are, in very broad terms, 3 types of risk: 1. business risk; 2. personal risk; and 3. third party risk.

In the first instance when we talk of non conforming building materials we immediately think of third party risk. A third party, has suffered a loss, death, personal injury and or property damage.

Without the benefit of insurance protecting the business, the risk has the potential to transfer to an individual and/or individuals. This then becomes a very serious personal risk.

Yes, you may be working for a business, but if that business does not have insurance, or sufficient insurance and does not have the funds to meet a claim or claims, the individual director of that firm or the professional who certified the use of the product or the suitability of the product and/or building may well be found personally liable.

The extent of the problem with non-conforming building materials is not fully known but in a recent Channel 7 report it was stated:

Eighty per cent of all new residential strata constructed in New South Wales, Victoria and Queensland have these sort of defects.

There has been a conspiracy of silence over this, people trying to protect their capital value (by) fixing their building quietly.

Even if this is half right, this issue has created a serious issue for a large number of professionals. There are a lot of upset people out there and lawyers willing to take on their case.

What clearly needs to take place is that all imported building materials are tested independently to determine if they comply with current Australian Standards. This would give protection to the end consumer as well as builders and other building professionals.

There are important lessons here for any trade, professional or business operator. Will your work stand the test of time? Do you have quality insurance in place for if a genuine mistake is made?

Speak with your accountant, lawyer and insurance broker to protect yourself against the worse type of risk: personal risk.

If however, you have deliberately gone out to cheat people, I have absolutely no sympathy for you reserving this for your victims.

A copy of the Ministerial Order is attached for the attention of Members providing advice to clients operating in this area.

The new Ministerial Order takes effect on 12 August 2019.

I thank Dallas Booth, CEO of NIBA for sharing the release of the change of regulations. The commentary around the changes however are mine and not necessarily shared by Mr Booth or NIBA.