The Insurance Council of Australia and Insulation Australasia say the use of non-compliant and non-conforming materials on Australian building sites is responsible for a sharp rise in Professional Indemnity Insurance (PII) claims and commensurate losses.

As a result, the industry is rethinking how it offers covers to building professionals. Work in the Australian building and construction industry involving non-conforming material will no longer be covered by PII policies. Furthermore, the use of material determined to be non-conforming now, or in the future, could have serious financial implications for businesses found liable for its removal and replacement.

"Substitution of non-compliant building materials may sometimes be done near the final stages of construction, or without the full understanding of all parties involved, leaving an accurate account of the building’s composition unaccounted for", says Karl Sullivan, Head of Risk & Operations for the Insurance Council of Australia.

"This prevents insurers from accurately assessing both a building’s risk profile, as well as the liability risks that a certifier or other building professional may face."

The amount of PII claims filed annually has significantly increased, with many exceeding $50 million. Recent studies of the industry have revealed that for every $1 collected in premiums, over $3.40 in claims have been paid.

Sullivan says any builder who has worked with non-compliant materials must ensure their PII policy is correct and up to date.

"As PII policies are generally claims-based, policy holders must be insured at the time the claim is made – not, as some believe, simply having insurance in place when the service or function was originally performed. It is important to notify your PII insurer if, at any time in the past, you have worked with non-conforming building products, before your PII cover is renewed with exclusions that may limit your ability to claim."

The warning comes in the wake of a recent construction boom over several states, which has further concern about the potential use of non-compliant materials in the development of houses and commercial buildings. This is compounded by the fact that each state and territory in Australia has approached the use of non-conforming materials in different ways. Where some have banned individual products, others have relaxed legislation requiring PII for building professionals.

"Although Australian Standards and the National Construction Code exist, the 'cost down' approach to construction and the proliferation of the Design and Construct model has created an environment where compliance oversight and site supervision is low, leading to the substitution of unspecified products over specified ones – it’s endemic", says Scott Gibson, Chair of Insulation Australasia.

"Due care must be taken to ensure all building materials and engineered solutions are fully compliant. Importantly, those substituting products for non-compliant alternative should be held accountable.

"Site governance has been deteriorating for some time now with a lack of impartial site supervision coupled with the disempowerment of architects, engineers and certifiers across much of the construction landscape. The pursuit of cost down has overreached, contributing to a high-risk environment for building practitioners and insurers."

Sullivan warns that the entire industry must remain prudent.

"If you’re reviewing PI coverage, you must be aware of any reductions, limitations or exclusions in your cover regarding non-conforming and non–compliant building materials which may very well be imposed on your renewal. Always use only fully compliant building products; we also strongly recommend requesting third-party certification to demonstrate compliance. Don’t take the risk!"

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