Gallagher is warning that a combination of legislative reform and a key court ruling in New South Wales is materially changing how construction liability is allocated and how professional indemnity (PI) programs need to be structured in Australia.
In an insight on the state’s Design and Building Practitioners Act 2020 (DBP Act) and the High Court’s decision in the Pafburn strata defects case, Gallagher said the developments have “far-reaching implications for [the] Australian construction sector – and the professional indemnity insurance required across entire projects.” The broker highlighted that the statutory duty of care under the DBP Act is non-delegable, retrospective, and applies across all building types and participants, including individual employees and directors. Gallagher said the combined effect of the DBP regime and the Pafburn ruling “shift risk back on to developers and head contractors, as well as increasing the exposure of project participants such as subcontractors and employees.”
Under the DBP Act, the statutory duty of care is not confined to corporate entities. It extends to the broader delivery chain, capturing builders, designers, subcontractors (such as electricians and plumbers), project managers, supervisors, developers, and others with substantive control over building work. The duty is owed to both current and future owners of a building, and it is attached to the building itself rather than limited to contractual counterparties. This means that economic loss claims for building defects can be brought by a wider group of potential claimants, including subsequent purchasers.
The legislation also has a significant look-back element. The duty applies to construction work performed up to 10 years before the act commenced, where damage is discovered after 2020. In practice, work undertaken from mid-2010 may be caught, raising potential exposure for directors, officers, and practitioners who have since retired, sold their interest, or moved to other roles. Unlike other elements of the DBP framework, such as compliance declarations tied to specific building classes, the duty is universal in scope. It applies across all building classes and covers the full range of construction activities, including design, supervision, project management, and the supply or manufacture of building products.
Gallagher describes Pafburn as a landmark decision because it confirms that breaches of the DBP statutory duty of care give rise to a non-delegable, vicarious-style liability. Developers and head contractors can no longer use New South Wales’s proportionate liability regime to limit their exposure on DBP Act claims by pointing to the conduct of subcontractors. Before Pafburn, proportionate liability laws allowed each defendant in an economic loss claim to be responsible only for its assessed share of fault, with any shortfall from insolvent or uninsured parties effectively shifting to the claimant. The High Court held that this framework does not apply to breaches of the DBP duty. As a result, developers and builders can be held liable for the full cost of rectifying defects, even where other parties contributed to the loss.
To redistribute that cost, principals now need to bring cross-claims against subcontractors, consultants, and suppliers. Gallagher expects this to increase the complexity and duration of disputes and to raise both defence and coverage costs for PI insurers, particularly on multi-party projects with layered contractual structures. The DBP Act also includes a requirement that contractors, subcontractors, and consultants maintain PI insurance that is adequate for their potential liabilities. That mandatory insurance provision has been deferred each year since 2020, currently to July 1, 2026, and it is uncertain whether it will be further postponed or allowed to take effect.
Gallagher’s commentary indicates that developers, head contractors, and other project participants may need to revisit their risk frameworks and insurance arrangements in light of these legal developments. For developers and head contractors, priority actions include tightening the agreed scope of works, reassessing contract terms with subcontractors, and considering requirements for minimum PI limits and express contracting out of proportionate liability where appropriate. Gallagher also points to a need for closer scrutiny of PI programs, including:
The firm notes that “individual employees of developers and contractors need to be aware of their personal exposure under the DBT Act as well as the potential for legal actions and costs,” and recommends tighter controls around subcontractor and consultant appointment processes.
For subcontractors, consultants, and suppliers, the DBP duty introduces direct statutory exposure irrespective of their position in the contractual chain. Gallagher recommends reviewing PI and related liability cover with specific reference to DBP risks, confirming retroactive dates, and monitoring how insurers define insured persons and entities. Because of the retrospective reach of the duty, Gallagher warns that the legislation “could also apply to company directors who have recently retired or exited the business.”
Although the DBP framework currently applies only in NSW, Gallagher expects the broader policy direction to extend beyond the state. The firm notes that other jurisdictions are examining their own building quality and defect regimes and that “other states are expected to follow,” with Victoria understood to be working on reforms based on similar principles. In this environment, Gallagher recommends that construction businesses and project owners work with insurance brokers that specialise in construction and PI. According to the broker, it is “recommended that all construction sector business organisations and owners access the support of an industry specialist broker who can help navigate the increased professional indemnity liability exposures and ensure you have the right protections for your business and employees for your projects.”
Gallagher’s legal and risk commentary comes against the backdrop of a construction PI market that, according to Lockton, has been gradually stabilising and improving following the hardening phase of recent years. Drawing on trends outlined in its 2025 market snapshot, Lockton reports that premium rates have broadly returned to levels considered sustainable by insurers, leading to increased capacity and a greater willingness to write or expand construction PI portfolios. Many carriers are prepared to lift line sizes on existing accounts or consider reduced pricing for firms with strong claims records and measured growth plans. Small and medium-sized enterprises are often better placed to benefit from this shift than large, complex, or multinational construction groups.
Lockton notes that underwriters remain cautious about cross-border exposures and large, technically challenging projects, but are more open to competitive terms where risk information is robust and governance is clear. In relation to cladding and fire safety, cover that had been heavily constrained is now more commonly available, although typically subject to aggregate limits, higher excesses, and exclusions for certain consequential losses. Standard International Underwriting Association wordings still underpin much of this cover, but blanket exclusions are reportedly less frequent than at the height of market concern.
For insurance professionals in Australia, the intersection of NSW’s DBP regime, the Pafburn decision, and evolving PI market conditions underscores the need for close coordination between underwriting, broking, risk management, and legal teams when structuring cover for construction risks in 2026 and beyond.
