The NSW Government has enacted the Design and Building Practitioners Act 2020 (DBP Act) to improve the quality of building and construction work. The DBP Act is designed to hold Design Practitioners, Principal Design Practitioners, Building Practitioners and Professional Engineers (registered practitioners) accountable for their work.
Whilst part of the DBP Act has already commenced, to give effect to key parts of the DBP Act on 1 July 2021 regulations will need to be put in place. A draft Design and Building Practitioners Regulation (draft Regulation) has been released for public comment. The deadline for submission of public comments is 11 January 2021.
The draft Regulation covers a number of areas, including:
- the provision of regulated designs and compliance declarations to the Secretary of the Department of Customer Service (Part 2);
- the lodgement on the NSW planning portal of designs and compliance declarations at four key points throughout the life of the building work (Part 3);
- the process for registration for practitioners and the qualifications, experience, knowledge and skills required for registration in a class of practitioner, and the continuing professional development requirements for registered practitioners (Parts 4 and 5, including Schedules 1, 2 and 3);
- the insurance required to indemnify registered practitioners (Part 6);
- a Code of Practice for registered practitioners (as contemplated by Section 50 of the DBP Act) (Part 4 and Schedule 4). The Code of Practice includes duties to act within levels of competence and expertise, maintaining satisfactory level of competence and avoiding conflicts of interest); and
- the offences for which penalty notices may be issued (Schedule 5).
The Minister for Better Regulation and Innovation in the second reading speech for the DBP Act explained that by implementing the DBP Act, the Government sought to ensure 'future occupants of buildings have confidence that they are buying a quality design and expert construction' and have 'recourse available in the event of a defect during a building's life'. The DBP Act imposes a statutory duty of care on any person who carries out construction work (which is defined to include building work and preparation of regulated designs and other designs for building work).
Practitioners involved in building design, building work, the manufacturing or supply of products used for building work and supervisory roles will be required to exercise reasonable care to avoid economic loss which would be caused by defects relating to, or arising from, construction work. If a practitioner breaches this duty of care, a property owner will be entitled to damages (regardless of whether there is a contractual arrangement to carry out that construction work). Importantly, the duty of care is owed to current and subsequent owners of the land in relation to which the construction work is carried out.
It is appropriate that practitioners have the financial ability to respond to any claim arising from any breach of that duty of care (and have appropriate insurances to enable them to meet those claims).
In that context, Section 30 of the DBP Act provides that the regulations may make provisions with respect to insurance.
Part 6 of draft Regulation relevant to insurance
The approach taken in Part 6 of the draft Regulation is one of self-assessment and self-selection. The rationale for the self-selection as stated in the Regulatory Impact Statement is that a registered practitioner is in the best position to assess their potential liability and determine the adequate level of cover for their business needs.
Further details of the insurance regime under the draft Regulation are set out below.
Under the DBP Act, a registered practitioner must satisfy the Secretary that they are ‘adequately insured'.1 A registered practitioner is adequately insured if that practitioner:
- is indemnified by insurance that complies with the regulations against any liability to which the practitioner may become subject as a result of providing the declaration or doing the work, or
- is part of some other arrangement approved by the regulations that provides indemnity against the liability.2
This a broad obligation (given that, by its nature, insurance includes exceptions and exclusions which means that all risks cannot be insured). However, under the draft Regulation,+registered practitioners are required to effect insurance that, in the-reasonable opinion of the practitioner, provides for an adequate level of indemnity for the liability that could be incurred.3 supRegistered practitioners (other than building practitioners) may be insured via individual policies, partnership policies or corporate policies.
In determining what insurance is adequate, registered practitioners must take into account the following:
- The nature and risks associated with the work typically carried out by the registered practitioner;
- The volume of the work typically carried out by the registered practitioner;
- The length of time that the registered practitioner has been registered;
- A reasonable estimate of claims that could be brought against the registered practitioner on the basis of the above;
- The financial capacity of the registered practitioner; and
- Any limits, exceptions, exclusions, terms or conditions of the policy.
It is not clear whether it will be sufficient for the practitioner to rely upon the advice of a professional insurance broker in relation to adequacy of cover or whether the practitioner must make his / her own assessment.
It is, however, a condition of registration that a registered practitioner keep and maintain records for five years that specify how the practitioner determined that a policy provides for an adequate level of indemnity.
A person to whom the duty of care under Section 37 of the DBP Act is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.
Actions for breach of the duty of care are subject to limitation periods established under the Limitation Act 1969 (NSW) and section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW) dealing with defective building work (which provides a ‘long stop' limitation date for actions for recovery of loss or damage brought more than 10 years after the completion of the work).
Professional indemnity insurances are generally ‘claims made' policies, that is, the insured practitioner will be indemnified if a claim is made against the insured during the period of cover (which arises from the provision of professional services).
Consideration should therefore be given as to mandating a minimum period of PI cover to ensure that insurance is held for the duration of the relevant limitation periods.
By Section 70 of the Regulation, a professional indemnity policy may be subject to a limit of indemnity for one claim or all claims occurring in one year, but only if not inconsistent with the requirements of Part 6. Similarly, by section 71 of the Regulation, a professional indemnity policy may contain exceptions or exclusions that are not inconsistent with the requirements of Part 6.
It is, however, not clear how these provisions will operate in practice given that, by their nature, a limit on indemnity or an exclusion may mean that a practitioner is not insured against all liabilities which could be incurred.
There are also variances to the requirements that will apply (assuming the draft Regulation is finalised) to building practitioners and professional engineers.
Under section 66 of the draft Regulation, the Secretary may exempt registered Building Practitioners from needing to be adequately insured when issuing a Building Compliance Declaration or doing related building work.4 This effectively imposes an obligation on the registered building practitioner to seek an exemption where it cannot obtain insurance.
In addition, whilst the insurance required for other classes of registered practitioners is expressly identified as professional indemnity insurance, section 65 of the draft Regulation provides that a building practitioner can effect insurance that complies with the draft Regulation ‘whether a professional indemnity policy or otherwise'. This likely reflects the fact that not all liability of a registered building practitioner is insurable under a professional indemnity policy (that insurance covering only professional risks such as design, specification, project management and construction management).
Like other classes of registered practitioners, professional engineers are adequately insured if they are indemnified under a professional indemnity policy or are part of an approved arrangement. A professional engineer is part of an approved arrangement if:
- For an engineer who is a member of a professional body that operates with a professional standards scheme—the professional engineer satisfies the insurance requirements imposed by the body in accordance with the professional standards scheme, or
- For an engineer who is recognised or registered by a recognised engineering body—the professional engineer satisfies the insurance requirements imposed by the body under the body's recognition or registration scheme.5
If an engineer is part of a professional standards scheme, the engineer's liability may be capped or limited in accordance with the scheme.
DBP Act sections 11(2), 14(2), 24(2), 33(2).
2 DBP Act sections 11(2), 14(2), 24(2), 33(2).
3 DBP Regulation section 65(2).
4 DBP Regulation section 66; DBP Act section 24(4).
5 DBP Regulation section 60.
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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