PI insurance and combustible cladding update

19 July 2019

PI Insurance, certifiers and the Building Ministers Forum meeting

The outcomes of the recent Building Ministers Forum (BMF) are an important step toward addressing the ongoing issues with PI insurance and combustible cladding.

While the meeting agreed to a national approach to implementing the Shergold-Weir report, and a coordinated approach to dealing with the crisis in professional indemnity insurance, the group did not deal with the rectification of existing buildings with combustible cladding.

Master Builders’ position remains that builders should not be liable for buildings that complied with the National Construction Code (NCC) at the time of construction. Responsibility lies with governments for the shortcomings of their National Construction Code and a failure to recognise this for the 20 plus years that combustible cladding was used on buildings.

A national approach to the Shergold-Weir report

The recommendation to take a national approach to implementing the Shergold-Weir Report is sensible and will go a long way to improving community confidence in the building system.

However, the reality is that many of the recommendations are already in place in Queensland (e.g. a comprehensive licensing system for builders and trade contractors [around 80 license categories] and non-conforming building products legislation); or are planned to be introduced (e.g. Continuing Professional Development for licensees).

The priority reforms that are needed in Queensland are mandatory product certification and improved project documentation and processes for the approval of performance solutions.

Strengthening the ABCB

The decision to improve the effectiveness of the Australian Building Codes Board (ABCB) is long overdue. There is an urgent need to ensure there is more transparency and rigor in the process for updating the NCC and more clarity in the Code itself. The lessons learned from the cladding problem are that shortcomings of the NCC were allowed to go unaddressed for 20 plus years. Even after the Lacrosse fire in Melbourne in 2014 it was another four years before the Code was amended by the ABCB.

PI Insurance and long-term rectification solutions

The decision that the states and territories will work towards a coordinated approach to professional indemnity insurance is a positive measure but falls short of addressing the rectification of existing buildings with combustible cladding. In our view, there are three parts to resolving this issue:

1. The immediate priority is allowing certifiers to continue operating. This should now be fixed with Minister deBrenni announcing that he would allow certifiers to have exclusions in their PI insurance (in line with NSW and Victoria).
2. The short to medium term issue of ensuring that new and existing buildings are able to be certified (taking into account the exclusions for PI insurance which relate to #1). There will be certifiers who need to work with combustible cladding in the rectification of existing buildings and no longer have insurance coverage.  
   
   Victoria provides a peer review system where the certification is checked by an independent panel, which includes certifiers, and then the state government indemnifies this aspect. Queensland is exploring something similar where certifiers and fire engineers, working through the Queensland government, sign-off performance solutions where combustible materials are used in external cladding, or other high risk building work.
3. The medium/longer term issue of determining who pays for the rectification of the say 100 existing buildings that will be identified through the Safer Building Program as having combustible cladding.

The bottom line is builders, certifiers and building owners should not be left to pay for the rectification of buildings which were deemed compliant at the time that they were built.