Professional Indemnity (PI) Insurance safeguards licensed builders against legal liability arising from actual or alleged breaches related to design. Even if you are not directly responsible for a defect, you can still face legal action when issues occur in a building project. PI Insurance is essential because it provides financial protection for claims linked to design liability.
Upcoming Legal Requirement (Effective from July 2026)
Starting 1 July 2026, under the Design and Building Practitioners Act 2020/2021 in New South Wales, all registered building practitioners (including builders, designers, engineers, and certifiers) must hold “adequate” Professional Indemnity insurance for work they carry out.
- Adequate level: decided in good faith based on liability exposure, with cover typically ranging from AUD 250,000 to AUD 10 million. [prosperlaw.com.au]
- Retrospective duty of care: The Act applies up to 10 years after the work is completed, making run-off protection essential. [prosperlaw.com.au]
- Compliance: Without valid PI cover, practitioners risk fines, suspension, or cancellation of registration. Coverage options have been available since July 2025, via providers like Chubb and DUAL. [prosperlaw.com.au], [australian…ech.com.au]
This new requirement reflects a broader shift toward strengthening accountability and consumer protection, ensuring all professionals can respond financially to negligence or defects. [nsw.gov.au]
What Does the Policy Cover?
- Breach of duty (acts, errors, omissions, misleading statements, or breaches of confidentiality)
- Defence costs for actual or alleged breaches of duty
- Claims made and reported during the policy period
- Allegations of misleading or deceptive conduct
- Vicarious liability
- Mitigation of costs
Why It Matters
- Design risk is significant: 45% of building failures stem from design issues.
- Builders who engage consultants remain exposed to liability for the consultant’s work or advice—this exposure may be partial (e.g., defence costs) or total (if the consultant ceases trading).
How PI Insurance Works
A warehouse roof collapsed during a storm. The builder, under a design-and-construct contract, subcontracted the roof design to a structural engineer. The owner claimed $10 million in damages. The PI insurer defended the builder and covered $250,000 in defence costs. If the engineer had ceased operations, the builder’s PI policy would indemnify the full $10 million liability.
A homeowner sued a builder for $1 million after cracks appeared in a stone tile floor. The issue was traced to a design fault specified by the architect. The builder’s construction policy excluded design defects, leaving him to pay $70,000 in defence costs. PI Insurance would have covered these costs.
Key Policy Considerations
Your CIG Insurance broker can advise you on coverage including the following coverage benefits:
- Employment practices liability
- Fidelity cover (employee dishonesty)
- Principals indemnity – when contractually required
- Project management liability
- Mitigation, privacy breach, seepage/pollution
- PR expenses
- Cyber risk
Curious about Professional Indemnity?