The construction sector in New South Wales is entering a period of profound change.
A series of regulatory and judicial reforms is transforming the way construction risk is managed, and at the centre of this evolution lies decennial liability insurance (DLI).
While currently voluntary, the government’s stated intention is that DLI will become mandatory for Class 2 residential apartment buildings by 2028. When that occurs, liability for major defects will shift decisively from apartment owners to the insurance sector, fundamentally altering the balance of risk across the industry.
What is DLI and why it matters
DLI is a first-party, no-fault insurance product that provides cover for the cost of rectifying serious defects in a building’s critical elements for 10 years following completion. Developers obtain the policy prior to construction, and coverage automatically extends to subsequent owners.
Unlike traditional professional indemnity or home warranty insurance, DLI is not contingent on proving negligence. Once a qualifying defect is established, the insurer pays out, even if the responsible developer or builder has become insolvent or is no longer trading. This provides certainty for consumers, stability for the market, and a clearer framework for all stakeholders involved in complex residential projects.
The policy covers serious defects affecting key structural, waterproofing, and fire safety systems, which are precisely those that have plagued high-density developments over the past decade. It does not, however, extend to routine wear and tear, maintenance issues, or damage caused by external events.
A new era of accountability
Following the recommendations of the Ministerial Advisory Panel, the NSW government has embarked on a phased introduction of DLI. The 2022 Building and Other Fair Trading Legislation Amendment Act established its legislative foundation, allowing developers of multi-storey residential buildings to adopt DLI as an alternative to the current Strata Building Bond scheme.
The intention is clear: by 2028, DLI will become mandatory for Class 2 buildings. This transition period allows the insurance market to mature, products to be tested, and the construction industry to familiarise itself with compliance requirements.
To obtain DLI, insurers will undertake rigorous technical inspections: pre-construction design risk reviews, site inspections during construction, and verification that all works align with approved plans and standards. Where non-compliance is detected, construction may not proceed until defects are rectified. This approach places insurers at the centre of quality assurance, incentivising best practice rather than retrospective dispute.
Lessons from abroad
DLI is not a novel concept. It has long been a feature of construction markets in Europe and the Middle East, where the principle of decennial liability, i.e. strict liability for structural defects for 10 years post-completion, is embedded in civil codes.
In France, Spain, Italy, and Belgium, DLI is compulsory. Similar inherent defects insurance schemes operate in Saudi Arabia and other Gulf states. Even in the United Kingdom, where it is not mandated by statute, equivalent structural warranties are a prerequisite for mortgage finance on new-build homes.
The rationale is universal: consumers cannot independently assess latent structural quality, and therefore deserve statutory protection backed by insurance. NSW’s adoption of DLI brings it into line with these international standards, signalling a material strengthening of consumer protection and professional accountability.
Implications for the broader insurance market
The introduction of DLI will have significant implications for other insurance products. Contract works policies will continue to protect against physical damage during construction, and property insurance will still respond to external perils such as fire and storm. However, neither addresses the cost of latent defects that manifest years after completion, which is precisely the gap DLI is designed to fill.
Professional indemnity insurance is likely to experience the most pronounced effects. Because DLI is a strict-liability, no-fault scheme, insurers may later exercise subrogation rights to recover costs from parties whose negligence caused the defect, including engineers, architects, or subcontractors. Where policies include a waiver of subrogation in favour of the developer or builder (who pays the premium), these recovery rights will typically be preserved only against other third parties.
For construction professionals, this means DLI will reduce the frequency of direct claims by owners’ corporations but may increase exposure to recovery actions by insurers. The outcome will depend on the policy wording and on whether subrogation rights are waived.
Aligning with legal timeframes
Currently, NSW’s statutory “long-stop” period prevents claims for defective work more than 10 years after completion. DLI aligns precisely with this window, ensuring insurance protection is available for the full period during which a builder or developer remains legally liable.
The Ministerial Advisory Panel has proposed extending limitation periods to allow insurers to pursue at-fault parties within 24 months after a claim is made, even if this falls beyond the ten-year long-stop. This would preserve the full value of the insurance for consumers without constraining insurers’ ability to recover their losses, which appears to be a balanced and pragmatic solution.
Raising standards through market forces
The most transformative aspect of DLI may be cultural rather than legal. Insurers underwriting DLI policies will have a commercial incentive to insist on high-quality design, documentation, and construction practices. Developers and contractors with robust compliance systems will find it easier and cheaper to obtain cover. Those with poor track records or opaque corporate structures may struggle to secure insurance at all.
In this way, DLI could become a market-based enforcement mechanism for construction quality, reducing the need for prolonged litigation while improving overall industry standards.
Looking ahead
The pathway to mandatory DLI by 2028 presents both opportunity and challenge. Developers, builders, consultants, and insurers must begin adapting now by refining documentation, strengthening governance, and understanding how these new policies will interact with existing insurance programs.
If implemented successfully, DLI could represent one of the most significant reforms to construction risk management in Australia’s history. It promises a future in which apartment owners are no longer left bearing the cost of hidden defects, and where accountability, quality, and consumer protection are embedded from the foundation up.
The question, ultimately, is not whether the sector can afford to adopt DLI, but whether it can afford not to.
