Insurance and Building Update: Insurance for Protection Works – More to it than Meets the Eye

Jun 10, 2022

There are building works constantly going on all across Victoria. Often, as part of those works, protection work will need to be undertaken to protect adjoining properties. If protection works are required, the owner (being the owner of the land) or developer will need to ensure that insurance which complies with section 93 of the Building Act 1993 (Vic) (Act) is procured, and a copy of the insurance contract is lodged with the adjoining owner. Failure to comply with section 93 can result in costly delays, unnecessary legal costs (especially if an adjoining owner is opposed to the project) and other potentially significant financial penalties.

What kind of insurance is required by section 93 of the Act?

Section 93(1) of the Act states:

“Before any protection work is commenced in respect of an adjoining property, an owner must ensure that a contract of insurance is in force, in accordance with this section, against—

(a) damage by the proposed protection work to the adjoining property; and

(b) any liabilities likely to be incurred to adjoining occupiers and members of the public during the carrying out of the building work and for a period of 12 months after that building work is completed.”

It is settled law that two different kinds of insurance are required in order to comply with section 93(1) of the Act. This view was held by McMillan J in You v Thomas [2014] VSC 255 (You) and later endorsed by the plurality in Colonial Range v CES-Queen [2016] VSCA 328 (Colonial).

The type of cover required by section 93(1)(a) is property insurance (as opposed to liability insurance), being first party insurance upon which the adjoining owner can claim directly. This does not mean that every adjoining owner needs to be named as an insured in the policy. Rather, the policy just needs to be worded in such a way that the operation of sections 20 and 48 of the Insurance Contracts Act 1984 (Cth) would enable an adjoining owner to make a claim directly under the policy.

Section 93(1)(b) of the Act requires liability insurance as opposed to the property insurance required by 93(1)(a), and does not require that the adjoining owner needs to be able to claim directly under the policy. It is there to ensure that there will be coverage to meet liabilities incurred to the adjoining occupiers and the public.

The Act does not give any guidance about what kind of exclusions, if any, are permitted in the liability insurance policy and there is no case law by any superior Court in Victoria on this point. Therefore, it remains unsettled but the wording of the Act states that the coverage needs to be in respect of any liability. On that basis, it would appear that any exclusion or condition which erodes the coverage provided by the policy may render the policy non-compliant with section 93 of the Act.

Does a single policy need to provide coverage for the duration of the building work and 12 months after the building work is completed?

No. It will suffice for the policy to be renewed or extended for as long as is necessary.

The period of insurance covered by the policy was one of the issues considered in You. In that case, the Building Appeals Board (whose decision was the subject of judicial review) found the insurance policy in question did not comply with section 93 because the period of insurance was only 1 year. McMillan J concluded that this proposition was incorrect and found that the period of insurance was an irrelevant consideration, stating:

“Indeed, such a requirement would render ss 93(4) and (5), which compel the owner to renew or extend the contract, nugatory. It follows that reason (3) of the Board’s reasons is an irrelevant consideration Insofar as the Board considered that s 93 required the policy to cover the entire period of the building work, it erred in law”.

Is there a policy that provides insurance that specifically complies with section 93 of the Act?

We have not come across a specific insurance policy that provides protection works insurance that is ‘baked in’. Compliance with section 93(1) is, in our experience, achieved by an endorsement to an existing annual insurance policy or a project specific policy; often referred to as a ‘protection works endorsement’.

To complicate things, we have also seen that the form of protection works endorsement varies between insurers, with some being clearly compliant and others being less so. It is important to consider the form of endorsement properly in each case. We work with various brokers and insurers and can recommend some policies and endorsements.

Is it enough to just provide the adjoining owner with a Certificate of Currency?

No, although this is a question we have regularly encountered. Pursuant to section 93(3), the contract of insurance needs to be lodged with the adjoining owner prior to the commencement of protection works. The certificate of currency by itself is not a contract of insurance and, depending on the wording of the policy it may not even form part of the suite of documents that comprise the contract of insurance. It is important to look closely at the wording of the policy to see what comprises the contract of insurance in order to understand what documents will need to be lodged with the adjoining owner, and to carefully read the Certificate of Currency which may expressly state is only evidence of insurance which is to be contrasted with a contract of insurance.

Conclusion

It is important to get insurance for protections works. Complying with section 93 of the Act is not always a straightforward process, so given the potential for delays and penalties it makes sense for owners (and in most cases builders) to give due consideration to compliance with section 93 of the Act and their insurance policies.

If you are a developer/owner, it is critical to get your ducks in a row well prior to your builder commencing construction and protection works. If the insurance policy is invalid under section 93 of the Act, adjoining owners may apply to the Building Appeals Board or Court to stop construction works pending the developer obtaining compliant insurance.

If you are a builder, you must ensure that your building contract contains time and cost entitlements for any delay to the construction works by reason of an act of an adjoining owner in connection with the Building Act 1993 (Vic).

More information

KCL Law has extensive experience dealing with insurance claims and acting for builders, owners and adjoining owners in respect of section 93 insurance and protection works under the Act.

If you have any questions about section 93 of the Act or insurance, protection works or building generally, please contact David Weinberger (dweinberger@kcllaw.com.au) or Arnie Vijayakumar (avijayakumar@kcllaw.com.au) from KCL’s Litigation and Insurance Team or Damien Simonetti from KCL’s Construction and Infrastructure Team (dsimonetti@kcllaw.com.au).

Note: This article contains general information only and is a guide which is not intended to constitute, and is not a substitute for obtaining, legal advice.

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