Insurance requirements under the DBPA – some new year's resolutions

As the year draws to a close and we enjoy a well-deserved break, time is ticking down to the end of the transitional exemption from compliance with the mandatory insurance requirements under the Design and Building Practitioners Act (Act). As 1 July 2022 approaches, this may be the opportune time out to prepare.

And if you haven't done so already, time is more quickly running out (at 31 December 2021) to submit an application to be registered as a practitioner under the Act, to have the benefit of deemed registration.

Who and what?

The mandatory insurance requirements apply to all registered design practitioners, principal design practitioners, professional engineers and building practitioners.

Registered design practitioners, professional engineers and building practitioners are required to be "adequately insured", which is to be indemnified by insurance that complies with the Regulation (or some other arrangement), against "any liability" to which the practitioner is exposed as a result of providing the declaration or doing the work.

For registered design practitioners and professional engineers, this must be a professional indemnity policy. For building practitioners, this can be a professional indemnity policy (traditionally, largely unavailable to this market) or another policy. In addition, exemptions may apply to building practitioners who do not have adequate cover when making compliance declarations, if they are unable to obtain insurance.

For registered professional engineers, an approved arrangement will suffice, which is either satisfying the insurance requirements under a professional standards scheme or a recognised engineering body's insurance requirements.

For registered design practitioners and professional engineers, policies must be retrospective to all liability from the date of registration.

Policies must provide an "adequate level of indemnity" for the work carried out. To assess whether there is an "adequate level of indemnity" for registered practitioners, the Regulation requires consideration of the following:

  • the nature and risks associated with the work typically carried out
  • the volume of the work typically carried out
  • the length of time the practitioner has been registered
  • a reasonable estimate of claims that could be brought against the practitioner, having regard to the above
  • the financial capacity of the practitioner
  • the limits, exceptions, exclusions, terms or conditions of the policy.

It is worth noting in this regard that the statutory duty of care introduced by the Act has broadened the scope of liability and the classes of people who may be liable (for example, suppliers and manufacturers) for claims that current or subsequent owners can make for pure economic loss. It is also retroactive.

Plan now

Notwithstanding the required considerations in the Regulation, it is at the discretion of registered practitioners to determine what is adequate, for them. Practitioners must keep records, for at least five years, as to how the practitioner has determined the adequacy of the indemnity, and may be required to produce those records.

It is unlikely that legacy policies will provide an "adequate level of indemnity", given the requirements for coverage of "any liability". Restrictive insuring clauses, as well as exclusions, would not meet this requirement.

So will adequacy be defacto determined by (lack of) market availability, or will the market respond by creating a product that addresses the Act? If so, at what cost?

As the market grapples with this, some policies have been carving out liability under the Act during the transitional period to 1 July 2022.

Insurers are expected to have a low appetite to take on the risk of projects which predated the compliance provisions of the Act, so we would not expect policies to go beyond the required retroactivity to the date of practitioner registration.

Time is running out for this to be resolved, and registered practitioners may need to set aside time over the summer shutdown period to actively engage with their brokers and professional associations for how they will work to address this, before the transitional period ends on 1 July 2022.

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.