On 1 July 2021, the Design and Building Practitioners Regulation 2021 (NSW) came into force in NSW. The Regulation accompanies the previously introduced Design and Building Practitioners Act, which seeks to provide greater regulation of the design and construction industry and to help enhance consumer confidence in the safety of new apartment buildings.
For professional engineers, the Regulation includes the introduction of a registration scheme with clearly defined requirements concerning qualifications,insurance, and continuing professional development.
As shown in the diagram below, the Act previously introduced a statutory duty of care for those carrying out construction work to exercise reasonable care and to avoid economic loss caused by defects. The duty of care is owed to each owner, and the subsequent owner of the land and applies to all residential building work. The duty of care applies retrospectively for a period of 10 years prior to its introduction on 11 June 2020.
The Regulation outlines the insurance requirements for engineers seeking to be registered under the Act. The Regulation specifies that registered engineers must hold professional indemnity insurance that meets the following requirements:
- All professional engineering work carried out by the professional engineer must be indemnified;and
- All liability incurred since the registered engineer was first registered must be covered.
Liability is a defined term within the Regulation and refers to a responsibility to pay compensation for a breach of professional duty (errors and omissions) or breach of the Australian Consumer Law.
The Regulation does not prescribe a minimum limit of indemnity, but rather requires that the insurance in place is adequate for the work being undertaken according to‘the reasonable opinion of a registered professional engineer’. There are specific considerations prescribed for registered engineers when assessing the adequacy of their insurance, including:
o The nature and risks typically associated with their work
o The volume of work undertaken
o The length of time the engineer has been registered
o A reasonable estimate of claims that could be brought against the engineer
o The engineer’s financial capacity
o Limits,exclusions, terms, and conditions of the policy.
Engineers will be required to keep records for a period of 5 years following registration demonstrating compliance with the above considerations.
Engineers will have to show compliance with the insurance requirements of the Regulation by 1 July 2022 and provide copies of the records to the Secretary of the Department of Customer Service if requested (in writing). The Secretary also has the power to request specific information about insurance policies, including the Policy Schedule and endorsements, claims details, and disclosures in relation to insurance applications.
As a result of the changes introduced by the Act and the Regulation, some insurers are seeking to exclude certain liabilities an engineer may have incurred prior to registration under the Act. Generally, these exclusions concern Class 2 buildings, however, some go beyond this.
For registration purposes, the wording of the exclusion and period of applications critical when determining whether they impact on the ‘adequate’ cover requirements of the Regulation. For example, we have seen insurers seeking to exclude certain claims arising out of work performed prior to 1 July 2021. However, from a claims perspective, all such exclusions are onerous for engineers as they remove the retroactive cover for certain work.
While there is a grace period until 1 July 2022 for policies to comply with the requirements of the Act, BRIC is working with insurers to ensure that we can source cover that is both compliant with the Regulation, and appropriate from a risk management perspective.
This change relates to NSW only, however, BRIC monitors all jurisdictions and is committed to keeping our clients informed with relevant and timely updates.
Prepared by Adair Cusack
Insurance Consultant – Claims and Risk Management