Australia: Certifiers and professional indemnity insurance for the construction industry: Tough times ahead?

Last Updated: 9 July 2019
Article by Suzy Cairney
Most Read Contributor in Australia, July 2019

Professional indemnity (PI) insurance is a construction industry issue that has been brewing for years. Perhaps the biggest single catalyst for bringing this to a head has been the combustible cladding problems most clearly illustrated by the Lacrosse and Grenfell Tower fires. But the issue might have arisen anyway. So what's the problem now?

In summary, to be licenced as a building surveyor or certifier in Queensland (see section 52 of the Building Regulations (Qld) 2006), New South Wales and Victoria, you must have professional indemnity insurance that is not subject to any qualifications or exemptions. This week however, the last insurer in the market that was prepared to offer such PI insurance stopped providing it. It is no longer possible to get unqualified cover.

Building certifiers and surveyors are required to sign off on building permits and occupancy permits. In other words, they are an essential part of the process to complete building works so that they can be used.

Many certifiers and surveyors need to renew their PI cover around this time of year. The latest estimates indicate that perhaps as much as 30 per cent of certifiers will now be unable to renew compliant PI insurance and therefore will not be licenced. At the very least, such a significant proportion of certifiers being affected could slow down building works completions. That could affect the whole industry nationally, and in particular the certifiers themselves, but it also could have implications for contractors who are unable to achieve practical completion without the relevant certifier's sign off. The extent of this issue for contractors will depend on the terms of the relevant building contracts, but it could be significant.

Not surprisingly, the Master Builders Association has called for urgent action to address this situation, and has suggested a national pool of qualified engineers who could sign off on high risk components.

The Australian Institute of Building Surveyors has proposed a multi-pronged approach that includes new legislation giving private certifiers the same personal asset protections as local government certifiers currently have, plus statutory terms of engagement enabling (or obliging) a certifier to act in the public's best interest, and mandatory continuing professional development requirements.

The Society of Fire Safety Engineers Australia said "it's a disaster". They are particularly exposed in Queensland, where the recent combustible cladding rules require sign off by a Registered Professional Engineer Queensland, registered in fire safety engineering or fire engineering. The few of these that exist might now be unable to get PI cover at all for this work.

To address this "disaster", the New South Wales Government has recently proposed to allow professionals to register for licences for the next 12 months even if their PI cover excludes liability for cladding. The Queensland Government today said it will also allow licensed Queensland certifiers to hold professional indemnity insurance with cladding-related exclusions, as part of a two-pronged approach which will also introduce tough cladding laws. The Victorian Government is proposing a new entity, Cladding Safety Victoria, although exactly how this will play into the PI crisis is not clear yet.

While these State Government efforts are to be applauded, many in the construction industry believe a national approach to combustible cladding, and therefore to PI insurance, is required. However, the Federal Government is still to comment.

Even if these State-based approaches are implemented, however, this still only really moves the problem onto individual certifiers. The absence of PI cover for certifiers dealing with specific issues like non-conforming building products probably means that few will be prepared to undertake that work. There is also anecdotal evidence to say that where cover is available, PI premiums and excesses have in some cases more than quadrupled, and this type of cost increase is simply unsustainable for most businesses.

Urgent measures are needed to address this, as it is not just the construction industry that is affected. Many property owners have buildings that do not comply with the relevant combustible cladding or non-conforming building products legislation, and they will now find it harder to obtain advice and assistance to bring their building into compliance. In the meantime the risk of another catastrophic fire continues.

This is a complex problem, which will probably require a multi-pronged approach, perhaps using some or all of the potential solutions indicated above. The one critical item required, however, still seems to be missing – a national solution to this national problem. Construction is one of the engine rooms of our economy and we need business and government leaders at all levels to work together to find an answer.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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