Australia: Protection Works Insurance – Market failure or interpretive compliance with s93 of the Building Act

Last Updated: 19 September 2014

By: Jarrod Gutsa

When carrying protection works under Part 7 of the Building Act 1993 ("the Act"), it is a requirement pursuant to section 93 of the Act that an insurance policy is in place prior to the commencement of protection works.

The Act does not specify what type of insurance is required but merely states:

  1. " Before any protection work is commenced in respect of an adjoining property, an owner must ensure that a contract of insurance is in force, in accordance with this section, against—
    1. damage by the proposed protection work to the adjoining property; and
    2. any liabilities likely to be incurred to adjoining occupiers and members of the public during the carrying out of the building work and for a period of 12 months after that building work is completed.
  1. The contract of insurance must be entered into with an insurer and for an amount—
    1. agreed to by the owner and the adjoining owner; or
    2. in the event of a dispute, determined by the BuildingAppeals Board under"1

The Act's vagueness regarding the specifics of the types of insurance required is not supplemented by the Building Regulations 2006 which are silent on this matter. This in itself would not cause an issue if there was a specific insurance policy on the market that was named protection works insurance and was widely used. There is, however, no such policy available in the market. When speaking recently to a senior insurance broker he lamented "well it is a difficult situation for an owner undertaking a development as there is no such thing as a protection works insurance policy, underwriters simply don't provide such a policy".

Accordingly it is perceived by some that there exists a situation where there is a mandatory insurance legislated by parliament for which there is no such policy available in the market. However the vagueness of the Act in regard to exactly what type of policy is required may allow for a multitude of policies to comply with s93 of the Act.

It is current industry practice for protection works insurance policies to have some of the following characteristics:

  • the policy will be taken out by the builder/developer rather than the owner;
  • the policy will be for an annual period with an option for renewal;
  • The adjoining owner and a reference to section 93 of the Act is sometimes made on the policy certificate;
  • It is rare for the adjoining owner and section 93 of the Act to be made in the policy document itself.

A recent case of the Victorian Supreme Court of You v Thomas [2014][2] provides some guidance in regard to what type of policy will comply with s93 of the Act.

In this case a "Contract works, Plant & Equipment and legal liability policy" was taken out by the builder for protection works.

At first instance at the Building Appeals Board ("BAB"), it was found that the policy did not comply with s93 of the Act for the following reasons 10 Reasons:

  • "The Class of Insurance is 'Contract works, Plant & Equipment and legal liability';
  • The insured is Raisin & Braden Pty Ltd[the builder], not the adjoining owner Wal Mykyktenko [sic];
  • The Period of Insurance is only from 23 April 2013 to 23 April 2014;
  • The Owner Details do not identify Mr & Mrs Mykyktenko [sic] as the adjoining owner;
  • The statement 'In accordance ... 3145' is meaningless;
  • There is no reference under Legal Liability to liability for protection work;
  • In the Coverage Summary there is no defence [sic] to the adjoining property or the protection work;
  • In paragraph 1 in the Insuring Clause of Section 1 – Contract Works, the indemnity does not extend to the adjoining property;
  • The definitions of Property Insured and Property Damage in Definitions – Section 1 do not extend to damage to the adjoining property; and
  • There is no reference to the adjoining property in the Endorsements Section."3

The decision of the Board was appealed to the Supreme Court. His Honour Justice McMillan upheld the appeal on all grounds and found that the insurance contract did in fact comply with s93 of the Act, for the following reasons:

"The type of insurance contemplated by s 93(1)(b) of the Act is liability insurance, that is, insurance whereby the insurer undertakes to indemnify the insured for loss suffered as a result of liability to a third party"
"I have come to the conclusion that an insurance contract wherein the adjoining owner is not named as the insured will not, for that reason alone, fail to comply with s 93(1)(a). That section requires there to be a contract of insurance indemnifying the insured against damage by the protection work to the adjoining property. Its purpose is the protection of the adjoining owner against loss. An insurance contract upon which the adjoining owner was unable to recover would necessarily fail to comply with s 93(1)(a), for it would not in effect indemnify the adjoining owner against loss. In my opinion, s 93(1)(a) requires that the adjoining owner be insured under the contract.
... by operation of ss 20 and 48(1) of the Insurance Contract Act 1984, a person may be insured under a contract without being explicitly named as the insured."4

Furthermore his Honour found that it is inherent in s93(4) &(5) of the Act, that require an insurance policy to be renewed that there is no requirement that a single insurance policy cover the whole period of the work. However a policy must be renewed so that there is an insurance policy in force during the period of the work and for 12 months there after.5

This decision although does not explore all possible issues with s93 of the Act, does provide a measure of comfort to developers and owners in that merely because an insurance policy is take out by the builder does not prevent it from complying with s93.

It is beyond the scope of this article to provide all of the findings of Justice McMillian in You v Thomas 2014.To read the full decision of Justice McMillan please click here.


1Building Act 1993 (Vic) s 93(1)&(2)
2VSC 255 (2 June 2014)
3You v Thomas [2014] para 12.
4Ibid at para 28 & 31.
5Ibid at para 34.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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