Domestic Building Insurance (DBI) - What is it, when can I rely on it, how does it protect me as an owner and how do I know if my builder has obtained it?
Building a new home is an exciting time, but it can also be stressful with many terms and documents being provided to you that you may not have come across before. One of the most important documents you should receive from your builder is an insurance certificate which confirms that the builder has obtained a current policy for Domestic Building Insurance (DBI), also previously known as Builders Warranty Insurance, in relation to your contract and the property you are building.
What is DBI?
Pursuant to the laws and regulations surrounding domestic building works, a Builder is required by law to take out DBI for building works of $16,000 or more. This is also required pursuant to the Builder's contractual obligations as set out in most standard Major Domestic Building Contracts. A Builder is required by law to provide you with a proper written Contract for building works of $10,000 or more.
If you are unsure whether you have a Major Domestic Building Contract or may have been told that one is not needed for your project, it is important to get advice. We note that the type of DBI or Contract you are provided with is still subject to some limitations and exclusions. It is important to understand the contractual terms when entering into a building contract. However, we strongly recommend a written Domestic Building Contract for building works of all prices.
When can I rely on or use my DBI?
DBI is taken out by the Builder specifically for your building works, and provides protection in relation to incomplete or defective building works in the following limited circumstances:
- the Builder has died (this only applies if the Builder is a person, rather than a corporate entity or company registered with ASIC);
- the Builder has become insolvent, goes into administration or has a receiver appointed (this only applies if the Builder is a corporate entity or company registered with ASIC); or
- the Builder has disappeared and cannot be located or contacted (this applies if the Builder is either a person or a corporate entity).
In addition to the above, if the DBI policy is issued on or after 1 July 2025, DBI also provides protection if the Builder fails to comply with an Order from the Victorian Civil and Administrative Tribunal (VCAT) or a Court.
If none of the above circumstances apply, the DBI will not 'kick in' meaning you cannot rely on making a claim through the relevant insurer. In those circumstances, you will be required to pursue the Builder directly for completion or rectification of the building works via the DBDRV and, if unresolved, through VCAT. See here our articles on these processes.
How does DBI protect me as an Owner?
Once the DBI 'kicks in' (i.e. the Builder has died, become insolvent or disappeared, or for DBI policies issued after 1 July 2015, fails to comply with a Tribunal or Court Order), you are then entitled to make an application to the insurance body under your DBI. Most claims are generally for compensation for incomplete (including partially complete) and/or defective building works such as structural defects, water ingress or other significant issues. In recent years the rate of insolvency for builders has increased the number of claims based on a builder "going broke".
There are some policy restrictions for DBI, including the following:
-there is usually a maximum policy limit for all DBI claims - each policy is different, so it is important to have a suitably qualified person consider any limits on your policy.
In addition, there is usually a specific maximum policy limit for 'non-completion' DBI claims - i.e., when the Builder does not finish your build. Typically speaking this is a percentage of your contract price with a maximum limit, so it is important to have your policy reviewed so you can make an informed decision.
How do I know if my Builder has taken out the required DBI?
The Builder should inform you and provide evidence that they have taken out the DBI by providing you with a copy of the DBI in the form of a 'Certificate of Insurance' containing the following information:
- the property address;
- details of the Builder undertaking the Building Works, including the name of the Builder and its ACN, if the Builder is a corporate entity;
- names of the Owner/s;
- date of the Major Domestic Building Contract entered into between the Owner/s and the Builder;
- the Contract Price for the building works pursuant to the Major Domestic Building Contract;
- that the DBI cover is for the circumstances that the Builder has died, become insolvent or has disappeared or fails to comply with a Tribunal or Court Order; and
- the maximum policy limits for the DBI.
It is usual process for the Builder to take out the DBI and provide the 'Certificate of Insurance' to you within seven (7) days of obtaining same and before you pay any deposit and/or the Builder commences the building works. If the Builder commences the building works before the DBI has been obtained, any works performed by the Builder before it takes out the DBI may not be covered by the DBI.
Should I get legal advice?
The Building and Construction team at PCL Lawyers can provide specific and specialised legal advice and assistance in relation to all building and DBI related matters. In particular, we strongly recommend you obtain legal advice if:
- you are unsure if your Builder has taken out the required DBI or think it may not be correct;
- your Builder is not responsive, has not been on site for an extended period without explanation or you think it may be insolvent;
- your Builder has requested payment of the deposit or commenced the building works but has not provided a 'Certificate of Insurance' for DBI;
- you are not sure whether you can/should make a claim against your DBI; and/or
- you would like assistance with making a claim against your DBI.
If you think any of the above circumstances apply to you, or you are facing a different concern or issue in relation to your DBI, it is important that you act promptly due to requirements or time limitations which may apply to you, depending on the circumstances.
Our Building and Construction lawyers are highly experienced and skilled in advising on building and DBI related matters, including knowing the various requirements and relevant time limitations when considering making a claim against your DBI.
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.