Domestic Building Insurance (DBI), or builder’s warranty insurance, is required for Victorian residential building projects valued over $16,000. This insurance provides financial protection to homeowners if a builder fails to make good their obligations in accordance with the law. However, certain exemptions apply, especially for specific multi-storey residential buildings. Below, we outline DBI coverage, claim periods, exemptions, triggering events, and the importance of notifying the insurer separately to secure full protection.

What is Domestic Building Insurance (DBI)?

In Victoria, DBI mandates that builders obtain insurance for domestic building projects over $16,000 before starting work or receiving payments. DBI ensures that if a builder cannot complete a project or rectify defects due to insolvency, death, disappearance, or (for policies issued after 2015) non-compliance with a VCAT or court order, homeowners have a financial safety net. 

This insurance covers specific defects and incomplete work under these circumstances, providing essential protections for Victorian homeowners. 

What Does the $300,000 Cover?

Domestic Building Insurance (DBI) in Victoria provides up to a total of $300,000 in coverage per claim. The specific areas covered under DBI include: 

Completion of Building Work: DBI can cover the costs to complete unfinished building work if the builder is unable to finish the project due to specific triggering events. Rectification of Defects: Structural Defects: Coverage applies to structural defects identified within six years from the completion date of the building work. Non-Structural Defects: Coverage also applies to non-structural defects reported within two years from the completion date. Additional Expenses Related to Defects: DBI may cover additional costs incurred due to defects, including potential temporary accommodation or other related expenses, as long as the total claim does not exceed the $300,000 limit. 

Exemption for Multi-Storey Residential Buildings

While DBI is required for most domestic building work, an exemption applies to multi-storey residential buildings. As outlined in the Ministerial Order (see full details in the Ministerial Order here), DBI is not required for buildings with: 

More than three storeys above ground level (rise in storeys), and two or more separate dwellings. For buildings with four or more storeys, such as apartment complexes, homeowners and builders need to conduct additional due diligence, as DBI will not apply. Builders and developers should review this specific exemption to ensure compliance and understand their coverage obligations under the Ministerial Order. 

Coverage Periods and Claim Limitations

DBI coverage is defined by the type of defect and corresponding claim period. Here is how coverage is structured: 

Structural Defects: Coverage Period: 6 years from the start date, which is either the contract termination date or completion date. Homeowners must notify the insurer of any structural defect claims within this period for eligibility.  

Non-Structural Defects: Coverage Period: 2 years from the start date. Claims for non-structural defects must be submitted within this timeframe.  

Note: in addition to DBI-specific periods, a limitation period of 10 years applies to all building-related actions in Victoria (save for the cladding extension). This period starts from the date of the occupancy permit or certificate of final inspection. It is crucial not to confuse the warranty period of coverage with the 10-year limitation period of the Building Act 1993 (Vic), which defines the extent of eligibility and applicability within this framework.

Triggering Events for DBI Indemnity

DBI indemnity only activates in specific situations, allowing homeowners to claim coverage if the builder cannot meet obligations due to:

• Death of the Builder: The builder’s passing prevents project completion or defect rectification. 
• Insolvency: The builder is financially unable to fulfill their obligations. 
• Disappearance: The builder is uncontactable, making claims processing impossible. 
• Non-Compliance with Final Orders: For policies issued on or after 1 July 2015, DBI is also triggered if the builder fails to comply with a final VCAT or court order. 

These triggers are designed to provide homeowners with access to DBI when standard recourse through the builder is unavailable.

Lodging a Claim and Insurer Notification Requirements

To access DBI coverage, homeowners must differentiate between direct claims against the builder and formal claims with the insurer: 

Direct Claims Against the Builder: Homeowners can file a claim directly with the builder within the warranty period for defect rectification. However, this does not activate DBI indemnity automatically. Notification to the Insurer: If the builder cannot fulfill obligations due to a triggering event, homeowners must notify the insurer directly within the DBI claim periods. This step is critical to activate DBI indemnity, as failing to notify the insurer separately could result in the loss of coverage. The claims lodgment process is available on the VMIA DBI website, where homeowners can find guidelines and necessary steps for initiating a claim. If the claim involves builder insolvency, homeowners should lodge it within the required period, usually within 180 days of becoming aware of the insolvency. 

Appealing a DBI Claim Rejection and Seeking Legal Costs

If VMIA rejects a DBI claim, homeowners may have the right to appeal the decision. Here is how the appeal process works:

• Internal Review: First, request an internal review of VMIA’s decision. 
• External Review through VCAT: If unsatisfied with the internal review, escalate the matter to VCAT within 28 days of receiving VMIA’s decision. VCAT will review the case to determine if the claim rejection was appropriate. Each party typically bears their own legal costs in VCAT proceedings, but homeowners may request an order for VMIA to cover costs if the appeal is successful. VCAT considers factors like case outcome and the conduct of parties when deciding on cost orders.

In this firm’s experience, while awarding of costs to the successful party is not guaranteed, typically, the victor is awarded a percentage of costs at scale.

Conclusion: Protecting Homeowners with Domestic Building Insurance

Domestic Building Insurance is an important safeguard for Victorian homeowners, providing recourse when builders cannot meet obligations due to specific events. For some high-rise buildings, the DBI exemption—outlined in the Ministerial Order—means that extra due diligence is needed. By understanding DBI’s coverage periods, triggers, the separate requirement to notify the insurer, and the appeal process, homeowners can maximize their protection against potential financial losses in domestic building projects. 

It is advisable for homeowners to consult a construction lawyer experienced in the Building Act 1993 (ViC), Domestic Building Contracts, and DBI requirements. A skilled lawyer can help navigate the complexities of litigation periods, insurance triggers, and Ministerial Insurance Gazettes, ensuring comprehensive legal support and protection within the DBI framework.  

About Author

Tsigereda (Ziggy) Lovegrove is an experienced construction lawyer and practice manager at Lovegrove & Cotton Construction and Planning Lawyers, where she has worked for over a decade in various capacities, contributing to the firm’s operations, client representation, and guidance development. Ziggy is recognized for her expertise in construction law and her commitment to improving dispute resolution systems.

Disclaimer:
The information provided in this article is for general informational purposes only. It does not constitute legal advice. For specific legal advice related to building regulations and compliance, please consult a construction lawyer.