Landmark NSW Ruling: New Risks for Construction Liability Insurance
Court Decision Eliminates Proportionate Liability Defence for Builders and Developers
2
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
Recent developments in New South Wales have significantly altered the liability landscape for construction professionals.
A landmark court ruling in the Pafburn case has removed the proportionate liability defence previously relied upon by developers and head contractors, thereby increasing their exposure to claims related to building defects.
The Design and Building Practitioners Act 2020 (DBP Act) introduced a statutory duty of care aimed at protecting property buyers from construction defects. This duty is non-delegable, retrospective, and applies to all participants in the construction process, including individual employees and directors.
The Pafburn case clarified that breaches of this statutory duty create a vicarious-like liability, meaning that builders and developers are now fully responsible for the entire cost of rectifying defects, regardless of subcontractor involvement. This places the onus on them to pursue subcontractors through separate legal actions.
Given these changes, it is imperative for construction companies and professionals to reassess their professional indemnity (PI) insurance policies to ensure they provide adequate coverage for the increased risks. Additionally, strategic management of complex multi-party litigation, such as initiating cross-claims, will be essential in allocating remediation costs appropriately among responsible parties.
These developments underscore the need for heightened diligence and comprehensive risk management strategies within the construction industry to navigate the evolving legal landscape effectively.
Published:Monday, 9th Feb 2026 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
In a significant development for Australian small and medium-sized enterprises (SMEs), BizCover has announced the addition of Zurich's Professional Indemnity (PI) insurance product to its online platform, effective from 3 March 2026. This collaboration aims to provide SMEs with enhanced access to comprehensive PI coverage, addressing a critical need in the business community. - read more
In a significant development for the Australian insurance market, Markel, a US-based specialty insurer, has launched professional indemnity (PI) insurance products tailored specifically for Australian businesses. This strategic move comes in response to a notable reduction in PI insurance capacity over recent years, leaving many professionals seeking reliable coverage options. - read more
Sterling Insurance has successfully secured a new professional indemnity (PI) binding authority with Lloyd's, a move that promises to provide Australian brokers with greater control over product offerings and pricing structures. This development is part of Sterling's ongoing commitment to delivering tailored insurance solutions that meet the specific needs of niche and complex risk sectors. - read more
In a significant development for Australian small and medium-sized enterprises (SMEs), BizCover has announced the addition of Zurich's Professional Indemnity (PI) insurance product to its online platform, effective from 3 March 2026. This collaboration aims to provide SMEs with enhanced access to comprehensive PI coverage, addressing a critical need in the business community. - read more
The Insurance Council of Australia (ICA) has recently voiced strong opposition to proposals suggesting the use of professional indemnity (PI) insurance as a funding mechanism for the Compensation Scheme of Last Resort (CSLR). This stance was articulated in a submission to a Treasury consultation, where the ICA emphasized that PI insurance is not designed to serve as a consumer protection tool. - read more
