2025 Construction Insurance Law - A year in review

Executive Summary

Our 2025 construction insurance law review provides insights into the latest trends in construction claims and what we expect to see in the future. In this review, we look at:

• key construction liability cases in Australia including:
  • what is required to establish a breach of statutory duty under the DBP Act;
  • High Court clarification on the non-delegable nature of that duty and the future for proportionate liability;
  • the circumstances in which the Court will grant leave to third parties to proceed directly against insurers;
  • limitation issues and expanded claims;
• Parliamentary review into the Design and Building Practitioners Act 2020 (DBP Act) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (RAB Act) and related draft government bills including:
  • practical implications of the Pafburn decision on the construction industry
  • the introduction of decennial liability insurance;
  • the requirements to hold ‘adequate insurance’.

Key construction decisions in Australia – a year in review

The key construction cases in New South Wales have centred on:

• identification of what is required to establish a breach of the statutory duty under the DBP Act, the non-delegable nature of that duty, and limitation issues; and
• the circumstances in which the Court will grant leave to third parties to proceed directly against insurers.

What is required to establish a breach of statutory duty under the DBP Act?

Prior to the introduction of the Part 4 of the DBP Act (i.e. the part of the Act governing the statutory duty of care), proving the existence of a duty of care was a common feature of construction litigation.

The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

This was the first significant decision to consider the operation of the DBP Act. In that case, the Supreme Court concluded:

• the DBP Act was not a shortcut to proving negligence. Part 4 of the DBP Act was introduced to alleviate the need to establish that the duty existed. However, it was not intended to provide a shortcut for proving that the duty was breached;
• mere existence of a defect is insufficient;
• to successfully plead a breach of the statutory duty of care, the plaintiff is required to
  • identify the specific risks of economic loss that the defendant was required to manage;
  • identify the reasonable precautions that the defendant should have taken to manage those risks;
  • establish the causative link between the failure to take the precautions and the resulting defect / economic loss.

‘Loulach’ schedules are now a common feature of construction litigation for the purposes of particularising, in relation to each alleged defect, the relevant risk and what the plaintiff contends the defendant should have done in relation to that risk.

The Owners – Strata Plan No. 91684 v Parkview Constructions Pty Ltd [2025] NSWSC 493

In May 2025, the Supreme Court of New South Wales confirmed that it is necessary for the plaintiff to identify the likely credible sequence of events which would have occurred but for the alleged breach of duty. In particular, it noted:

This upheld previous decisions which considered this in the context of common law negligence claims.

High Court clarification on the non-delegable nature of the duty

The proportionate liability regime in Part 4 of the Civil Liability Act 2002 (NSW) (Civil Liability Act) was introduced to replace the common law doctrine of joint and several liability for certain types of claims. It applies to apportionable claims i.e. claims for economic loss or property damage arising from a failure to take reasonable care including claims for breach of contract, negligence, and misleading or deceptive conduct.

Introduced in the wake of an insurance crisis, the regime operates to limit a defendant’s liability to the proportion of the loss or damage claimed for which is it responsible.

In December 2023, the Court of Appeal of New South Wales found that the regime did not apply to claims for breach of statutory duty under the DBP Act.

Pafburn Pty Limited v The Owners - Strata Plan No 84674 [2024] HCA 49

The builder and developer appealed to the High Court of Australia, submitting that their liability was limited to supervision and did not extend to the building work and that the claim was therefore an apportionable claim within the meaning of Part 4 of the Civil Liability Act.

On 12 December 2024, the High Court, by a four to three majority, dismissed the appeal, reaffirming the DBP Act’s purpose to protect apartment owners by holding head contractors and developers primarily responsible for breaches of statutory duty.

The High Court emphasised the allocation of risk and responsibility lies with those who are better positioned to manage such risks—the developer and the head contractor—rather than end-user apartment owners.

This means a developer or head contractor cannot reduce their liability for construction defects by using the proportionate liability defence under the Civil Liability Act to attribute fault to subcontractors and consultants.

Leave to proceed directly against Insurers

Similar to the Third Parties (Rights Against Insurers) Act 2020 in the UK (UK Act), the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (NSW Act) was enacted to allow a third party claimant to proceed directly against an insurer when the insured is insolvent or otherwise unable to meet an insured liability.

However, unlike the UK Act which provides for a ‘transfer of rights’ upon the insured becoming insolvent, the NSW Act requires a third party claimant to first seek leave of the Court. To obtain leave, the claimant is required to establish three elements:

• An arguable case for liability against the insured;
• An arguable case the policy responds;
• A real possibility the insured cannot meet the judgment.

Although the standard required to establish an arguable case is low, leave must be refused if the insurer can establish that it is entitled to disclaim liability to indemnify.

There have been a number of recent high-profile decisions that have considered the requirements of the mandatory leave application.

374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd [2025] NSWSC 886

The NSW Supreme Court rejected the leave application brought by the developer to proceed directly against the insolvent builder's professional indemnity insurer on the basis that the developer failed to establish an arguable case that the policy responds. This case reinforces that a third party claimant’s entitlement to pursue a direct claim against insurers is contingent on strict compliance with policy conditions.

It was accepted that there was an arguable case that the builder would be liable to the developer, and that there was a real possibility that the builder would not be able to satisfy the judgment (because the builder was in liquidation). It came down to whether the developer would be able to demonstrate that the builder would be entitled to indemnity.

The Court strictly enforced the policy's definition of a ‘Claim’. It held that correspondence that only detailed complaints, reserved contractual rights, and demanded rectification did not constitute a clear, unequivocal ‘written demand for civil compensation or civil damages’ as required by the policy.

AAI Limited v The Owners – Strata Plan No 91086 [2025] FCAFC 6 (Vitrabond Class Action)

Conversely, in the Vitrabond Class Action, leave was granted to proceed directly against insurers.

This is a decision by the Full Federal Court of Australia regarding a third party’s entitlement to pursue insurers directly for indemnification for the costs of removing combustible cladding and replacing it with a compliant alternative. Insurers application for leave to proceed failed.

It is a representative proceeding, funded by litigation funders, on behalf of the owners with Vitrabond cladding on their buildings. The proceeding was originally commenced against the manufacturer Fairview Architectural Pty Ltd (Fairview) alleging that its Vitrabond aluminium composite panels had combustible polyethylene cores, were a fire risk, and that Fairview engaged in misleading conduct regarding its quality and safety.

In 2020, Fairview went into voluntary administration citing the financial pressures of the litigation as one of its reasons. The class subsequently brought an application seeking seek to join Fairview’s liability insurer to the proceeding. The insurers opposed the application for leave on the grounds that Fairview was not entitled to indemnity under the policy. The case turned on two indemnity points:

• Where there was property damage within the meaning of the policy;
• Whether there had been an occurrence that was neither expected nor intended from the insured’s standpoint.

At first instance, the Federal Court found that:

• it was at least arguable that property damage had occurred because:
  • the affixation of the defective panels caused a physical alteration of change to the buildings;
  • the removal of the panels would inevitably cause physical damage to the buildings;
• while Fairview may have intended to supply the defective panels, it did not nor expect or intend that the panels would be combustible or defective.

Insurers appealed. On appeal, the Full Federal Court concluded that no substantial injustice would follow from a refusal to grant leave to appeal in circumstances where:

• the question whether the policies respond has not been determined on a final basis and the insurer will have the opportunity at the final hearing to contend that the policies do not in fact respond;
• if the insurer ultimately establishes that it ought not to have been joined to the proceeding because the policies did not respond, then it will have a prima facie entitlement to payment of its costs; and
• the insurer has not suggested that it is unable to bear its costs of the proceeding – which it estimates to be in the order of $1.6 million – or that the bearing of such costs would cause it any difficulty. It is, after all, a substantial insurance company and litigation forms part of its business.

Limitation issues and expanded claims

The limitation periods applicable to building claims are:

Legislation	Limitation / warranty period
Breach of statutory warranty under the HBA	6 years for a breach that results in a major defect; or 2 years in any other case
Breach of statutory duty under the DBP Act	6 years
Breach of contract	6 years
Breach of deed	12 years
Misleading or deceptive conduct	6 years
Contribution, section 5 of the Law Reform Miscellaneous Provisions Act 1946	First to expire of: 2 years from date cause of action for contribution first accrues to the plaintiff; or 4 years from expiry of limitation period for principal cause of action.

In addition, s 6.20 of the Environmental Planning and Assessment Act 1979 (NSW) provides a ten-year long-long stop which applies to all building claims.

The Owners - Strata Plan No 87639 v Karimbla Properties (No4) Pty Ltd [2025] NSWSC 58

The owners corporation of a large residential development in St. Ives, Sydney commenced proceedings against the builder (entities within the Meriton Group) in the NSW Supreme Court alleging structural, fire safety, waterproofing, mechanical, hydraulic and other defects in the buildings.

The proceeding was initially brought for breach of the statutory warranties under the Home Building Act 1989 (NSW) (HBA). The owners corporation served 13 expert reports and a Scott Schedule which identified 5,445 defects and identified many of these as being systemic. At that stage of the proceeding, the quantum claimed was approximately $25.6 million.

In October 2023, the owners corporation added a cause of action for breach of the statutory duty under the DBP Act.

Settlement discussions broke down in March 2024. The owners corporation subsequently served 46 further expert liability experts, and a very substantive report from a quantity surveyor which opined that the total cost of the defects was now $123 million – almost 5 times the original quantum figure.

The owners corporation sought leave to file a second further amended List Statement to bring its pleading in line with the evidence.

The ten-year long-stop provision expired between December 2022 and February 2024 i.e. prior to service of evidence in support of the expanded claim.

The Supreme Court acknowledged that the proposed amendments may arguably raise new causes of action. It noted that:

• to the extent that they elaborated on the existing claims under the HBA, there was no new cause of action as there is only one cause of action for breach of the statutory warranties under the HBA;
• insofar as they introduced new causes of action under the DBP Act, new causes of action may be introduced.

The Supreme Court was critical of the manner in which it conducted the proceeding. Notwithstanding this, it approved leave to amend the pleading because:

• the proposed amendments aligned with the evidence that the owners corporation has served;
• no trial date has been set;
• any prejudice by reason of the builder’s inability to pursue cross-claims is  of its own making as it had been open to take those steps previously;
• any prejudice by reason of the expiration of limitation periods would be met be an order that the amendments apply from the date of the application for leave to amend. 

This case of illustrative of:

• the potential quantum of building defects claims;
• the general reluctance of the courts to shut owners corporations out from claims even in the face of egregiously bad case management.

Parliamentary review into the DBPA and the RAB Act 

The Parliament of NSW is presently conducting a review into the DBP Act and the RAB Act 2020 and related draft government bills. This review commenced on 21 May 2024. Submissions closed on 28 July 2025 and the Public Accountability and Works Committee heard from leaders and advocates across the construction industry on hearing dates on 11 August 2025 and 19 September 2025.

Key issues raised in the submissions and during the hearing included:

• practical implications of the Pafburn decision on the construction industry, the increased risk profile and financial burden for developers and head contractors, and the importance of guaranteeing proportionate responsibility;
• the introduction of decennial liability insurance;
• the requirements to hold ‘adequate insurance’.

Pafburn and the future for proportionate liability

The High Court confirmed that a defendant (such as a developer or head building contractor) sued for a breach of the DBP Act's statutory duty of care cannot rely on the proportionate liability regime under the Civil Liability Act 2002 (NSW).

The effect of the High Court decision means the developers and builders liability is non-apportionable and vicarious.

It reinforces that the statutory duty is a non-delegable duty. A builder cannot discharge this duty simply by exercising reasonable care in selecting and engaging a competent subcontractor.

This significantly increases the risk for builders and developers, who must now bear the risk of a subcontractor's insolvency. They must pay the full amount to the owner and then pursue the responsible subcontractor through a separate cross-claim for recovery which can be a costly and complex process

The Committee heard from leaders and advocacy groups in the construction industry. A repeated theme of the submissions was a call for the Government to address and guarantee proportionate responsibility. The importance of legislative clarification is critical because, despite the housing crisis:

• Developers shall be responsible for all of the accountability for all of what's gone wrong should there be a building failure or a major structural defect and collapse. It could not be apportioned amongst the consulting advisers that might have been responsible for that and ultimately it all goes to the developer. They will have to use their own contract and insurance arrangements with each of their subcontractors and consultants in order to recover any funds back;
• That has caused great concern for financiers who are shifting their funding for residential apartment building to other States;
• It has led to increased insurance premiums and costs for developers and head contractors operating in NSW. Furthermore, insurers are applying stricter policy conditions and looking closing at risk management processes, quality assurance processes, and contractual indemnity agreements with subcontractors.

Since they cannot rely upon a proportionate liability defence, developers are now required to pursue cross-claims against subcontractors and consultants to recover losses from the at-fault party. This also significantly delays and complicates the claims management processes for insurers.

The latest publicly available iteration of the Building Bill did not expressly clarify the position as it pre-dated the Pafburn decision.

Engineers Australia recommended that the NSW Government alleviates impractical and unreasonable obligations placed on individual engineers working on buildings by:

• identifying the key risks in the construction process and allocating each risk to the entity most capable of managing that risk.
• amending the DBP Act and its associated statutory instruments to clearly allocate roles and obligations to the individual or the business as appropriate.
• providing clear guidance to professional engineers on their obligations under the existing Act and proposed Building Bill.

The hearing indicated that verbal assurances have been given that the scope of the part 4 duty including whether it is apportionable will be addressed in upcoming legislation.

The question for Government is whether to address it under the existing legislation (by way of amendment to the current legislation) or under a new Bill.

Insurance requirements for design and building practitioners

Registered design and building practitioners must hold insurance that is adequate for any liability they could incur. 

Practitioners are required to determine what constitutes adequate cover for their own work. 

When choosing cover, factors to be considered include your financial resources, the risks associated with the work to be carried out, any policy limits and other factors outlined in the DBP Regulations 2021.

For registered design practitioners and professional engineers, this includes professional indemnity insurance.

Engineers Australia has also submitted that a major difficulty with the self-assessment approach is that individual professional engineers are not trained in insurance risk assessment or interpretation of insurance policies and may struggle to make the assessments of adequacy of insurance required under section 33 of the DBP Act. They may decline to do building engineering work for their employer or move to employers who do not serve the building sector, in order to avoid the risk of prosecution for breach of their obligation to be adequately insured under these laws.

They advocate for the following:

• a more centralised assessment of insurance adequacy by people trained in insurance risk assessment;
• legislation that allocates each risk to the entity most capable of managing that risk;
• the DBP Act be amended to separate the roles and obligations of individual employees and the contracting business as appropriate.

The requirement for building practitioners to hold professional indemnity cover has been deferred once again to 1 July 2026. This further extension reflects the difficulty in securing the relevant cover that adequately covers the non-apportionable liability exposed by the Pafburn decision.