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What is Domestic Building Insurance?

An Overview on Domestic Building Insurance

Domestic building insurance is a mandatory requirement prescribed by the Building Act 1993 (Vic), and Ministerial Orders published. The Domestic Building Contracts Act 1993 (Vic) regulates disputes concerning insurance claims and domestic building work. Both the Domestic Building Contracts Act 1993 (Vic) and the Building Act 1993 (Vic) are part of Victoria’s series of building legislative frameworks that regulate building standards and practitioners.

In summary, it is a requirement that builders should have insurance provided by designated insurers in relation to the carrying, managing, or arrangement of domestic building work.

This article addresses the frequently asked questions relating to domestic building insurance from the perspective of builders, and building owners, including:

How does the Building Act 1993 apply to domestic building insurance?

The relevance of the Building Act 1993 (Vic) with respect to domestic building insurance is impliedly set out in the statute’s objectives and purpose to regulate building standards and works and protect the safety and health of people who use buildings. In summary, the objectives of the Act can be thematically summarised:

ObjectivesSummary of Objectives
Safety and HealthTo protect the safety and health of people who use buildings and places of public entertainment.
AmenityTo enhance the amenity of buildings.
PlumbingTo promote plumbing practices which protect the safety and health of people, and the integrity of water supply and wastewater systems.
StandardsTo facilitate the adoption and efficient application of national building systems, and plumbing standards.
Cost-effectivenessTo facilitate the cost-effective construction and maintenance of building and plumbing standards.
Energy efficiencyTo facilitate the construction of environmentally and energy efficiency buildings.
CompetitivenessTo aid the achievement of an efficient and competitive building and plumbing industry.

As part of the Building Act 1993 (Vic), statutory mechanisms allow the Minister to publish Orders in the Government Gazette that requires builders to be covered by insurance relating to domestic building work. The current Ministerial Orders published relate to:

  • Domestic Building Insurance Ministerial Order dated 23 May 2003.
  • Domestic Building Insurance Ministerial Order dated 29 May 2014.

Other Ministerial Orders are publicly made available by the Victorian Building Authority.

Further, the principles and definitions relating to domestic building insurance are informed by published Domestic Building Insurance Ministerial Orders.

When is domestic building insurance required?

A domestic building insurance is required if a domestic building contract for the carrying out of domestic building work is more than $16,000. This is also known as an insurable domestic building contract.

In other related topics, we explore the statutory meaning of domestic building contract, and major domestic building contract. Those topics include:

When can a claim be made for domestic building insurance?

A domestic building insurance claim may be made if the policy does not exclude or limit certain claims. However, a policy may limit the scope of indemnify until after the builder dies, becomes insolvent or disappears.

Generally, for domestic building insurance relating to the VMIA, claims can also be made for a failure to comply with a Tribunal or Court Order for VMIA insurance issued on or after 1 July 2015.

In summary, insurance provisions in VMIA’s insurance issued on or after 1 July 2017 defines a failure to comply with a Tribunal or Court:

Types of FailuresSummary of Reasons for Failure to Comply
ExpiryThe period within which the builder or speculative builder may appeal the Tribunal or Court Order has expired.
ConclusionIf the builder or speculative builder has appealed the Tribunal or Court Order, the appeal has been concluded and the time within which the builder or speculative builder may appeal the outcome of the appeal has expired.
Written DemandFollowing the expiration of all appeal periods, a written demand on the builder or speculative builder seeking compliance with the Tribunal or Court Order, and more than 28 days has passed since the demand was served.
Statutory DemandThe builder or speculative builder has not complied with the Tribunal or Court Order, and a statutory declaration is made declaring in what way the builder or speculative builder have not complied with the Tribunal or Court Order.

What should a domestic building insurance indemnify?

A domestic building insurance should indemnify a number of items: loss or damage, loss of deposit, loss of progress payment, costs of alternative accommodation, act or omission of others.

Notwithstanding the above, a policy may provide that the indemnify only applies if the builder dies, becomes insolvent disappears. Since May 2015, the VMIA has included the event that the policy indemnifies if there is a failure to comply with a Court or Tribunal order under certain conditions, then the insured may also on the domestic building insurance.

Furthermore, a policy may limit claims for non-completion of domestic building work to an amount that is not more than 20% of the contract price under an insurable domestic building contract.

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What kind of loss or damage is indemnified?

A policy should indemnify the building owner for loss or damage resulting from non-completion of the domestic building work.

The policy should also indemnify the building owner for loss or damage resulting for all or any of the following events:

Types of EventsSummary of Events
DefectsDomestic building work that is defective.
Breaches of Statutory WarrantiesA breach of any warranty implied into the domestic building contract by section 8 of the Domestic Building Contracts Act 1995.
Standard and QualityA failure to maintain a standard or quality of building work specified in the domestic building contract.
Trade Practices ProvisionsConduct by the builder in connection with the domestic building contract that contravenes a trade practices provision. 

Read More: For further information, “What is domestic building work in Victoria?” explores the statutory meaning of domestic building work as prescribed in the Domestic Building Contracts Act 1995 (Vic).

When is a loss of deposit and progress payment claimable?

A policy should indemnify the building owners for loss of deposit (or any part of a deposit), or loss of any progress payment under the insurable domestic building contract.

When is the cost of alternative accommodation claimable?

A policy should indemnify the building owner for costs of alternative accommodations and removal and storage costs that are reasonably and necessarily incurred arising from kinds of events.

What is the meaning of structural and non-structural defects?

Defects relating to the built form, may relate to either structural or non-structural defects. The type of defects affect the cover period for insurance, and how the defects are categorised. Notwithstanding, statutory definitions are provided to the terms, structural defects, and non-structural defects. Other related terms, also include structural elements.

What is the period of insurance?

The period of indemnify insurance depends on the type of defects being claimed by the building owner, principally, whether it is non-structural or other causes other than non-structural defects.

Type of DefectsGeneral Meaning of Defects (Summary)
Non-structuralNon-structural defects mean, in a relation a building, a defect in building work other than a structural defect.
Structural defectsStructural defects mean in relation to a building, any defects in a structural element of the building that is attributable to defective design, effective or fault workmanship or defective materials (or any combination of these).

The defects may result in or is likely to result in any parts of the buildings being closed, prohibited, prevented from continued practical use, destruction or physical damage, or have a threat of imminent collapse that may damage or cause destruction.
Structural elementStructural element means in relation to a building, means any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including (but not limited to), foundations, floors, walls, roofs, columns and beams.

It may also include any component (including weather proofing) that forms part of the external walls or roof of the building.

What is the period of insurance for non-structural defects?

The policy should state that the indemnifies for non-structural defects as to loss or damage occurring during the period commencing on the commencement day, and ending not earlier than 2 years after the earlier of:

  • the completion date of the domestic building work; and
  • the date of termination of the relevant domestic building contract.

What is the period of insurance for all other defects?

The policy should state that the indemnities for all other loss or damage occurring during the period commencing on the commencement day and ending not earlier than six (6) years after the earlier of the completion date of the domestic building work, and the date of termination of the domestic building contract.

What are the types of buildings excluded?

The requirement for domestic building insurance is not applicable if a person carries out or proposes to carry out domestic building work under a domestic building contract for the construction of a multi-storey residential building, with respect to the carrying out of domestic building work for that construction.

Notes and Further Information

When examining domestic building insurance, related topics include construction and buildings. Those related topics explored include:

Domestic Building Work | Domestic Building Contracts Act 1995 | Domestic Building Contract | Major Domestic Building Contract | Variation (Owner) | Variation (Builder) | Domestic Building Regulations 2017 | Progress Payments | Variations (General) | Termination | Repudiation | Causation |

If you are looking for legal expertise and have any questions, connect with an author or a member of our building and construction team.

Do you need legal advice? Call us on (03) 5331 1244 to get in touch and arrange an appointment with one of our lawyers.

You can also connect with us by filling out your details and telling us about your information for legal advice below:

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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