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Insurance Coverage & Litigation

Construction Insurance Coverage Disputes

In this practice area

Coverage disputes for builders, developers, contractors and subcontractors under contract works, public liability, professional indemnity and home building policies.

01

When these disputes arise

Construction projects carry layers of insurance: contract works cover for damage to the works, public and products liability cover for third party injury and property damage, professional indemnity cover for design and consultancy work, and in NSW residential building, home building compensation cover under the Home Building Act 1989 (NSW). Each responds to different risks, and each has exclusions drafted with building disputes in mind.

Common disputes include whether a defect claim is property damage caused by an occurrence or simply the cost of fixing faulty work, whether a loss falls within a defects or faulty workmanship exclusion, whether design and construct work is covered under a professional indemnity policy, and how cover responds when a principal-arranged project policy and a subcontractor's own policy overlap.

02

The legal framework

Liability policies generally respond to legal liability for personal injury or property damage caused by an occurrence, and commonly exclude the cost of rectifying the insured's own work. Contract works policies cover physical loss or damage to the works, but defects exclusions, often drawn from London Engineering Group (LEG) clauses, vary in whether they exclude only the defective part or also resulting damage. Small differences in wording change the outcome.

The Insurance Contracts Act 1984 (Cth) applies to most of these policies. Section 54 limits reliance on post-contract acts or omissions such as breach of a site condition. Sections 45 and 76 address overlapping cover. For claims against insolvent or deregistered builders, the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), which replaced section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), allows a claimant to proceed directly against the insurer with leave of the court.

03

How these matters run

Construction coverage disputes usually run alongside the underlying building claim, whether in the Supreme Court, the District Court, the NSW Civil and Administrative Tribunal or arbitration. The insured needs cover for the defence and, if liability is established, for the award. Expert evidence about what failed, why and when is often decisive for both the liability case and the coverage case.

Early notification of every potential claim, to every potentially relevant insurer, is essential. Project documents, including the head contract insurance clauses, determine who was meant to insure what.

04

How GopherWood Lawyers acts

We act for builders, developers, contractors and subcontractors in the building dispute itself and in the coverage dispute that follows it. That lets us run the two together, so that positions taken on liability do not undermine cover.

We review the contract insurance provisions and each potentially responsive policy, notify promptly, and pursue the insurer that should respond.

Frequently asked questions

Construction Insurance Coverage Disputes

Will my public liability policy cover defective work claims?

Usually not the cost of fixing the defective work itself, which is commonly excluded. It may cover liability for resulting damage to other property or injury caused by the defect. The line between the two depends on the wording and on the expert evidence about what was damaged and how.

Can a homeowner claim directly against my insurer?

In NSW, a claimant can bring proceedings directly against a liable defendant's insurer with the court's leave under the Civil Liability (Third Party Claims Against Insurers) Act 2017. This most often arises when the insured builder is insolvent, deregistered or cannot be found. Leave must be refused if the insurer shows it is entitled to disclaim liability.

The head contract required the principal to insure the works. Does that help me?

It may. Principal-arranged contract works policies often name contractors and subcontractors as insureds. Whether the contractor is covered, and how that policy interacts with your own, depends on the policy wording and the contract. It is worth obtaining a copy of the project policy early.