The Building Amendment Bill, which passed its first reading in Parliament in June, is proposing significant reforms to New Zealand’s building liability and consumer protection framework that will be of particular interest to insurers, brokers and underwriting agencies operating in the construction and professional indemnity (PI) sectors.
The Bill amends the Building Act 2004 and would see a shift from joint and several liability for defective building work to proportionate liability, the introduction of mandatory home warranties and compulsory professional indemnity (PI) insurance for design professionals.
Move to proportionate liability
A significant legal reform proposed by the Bill is the replacement of the current joint and several liability framework with proportionate liability for defective building project work. This change is expected to have material implications for risk allocation across the construction sector and may influence future underwriting and claims outcomes.
Under a proportionate liability regime, each party involved in a building project is responsible only for the proportion of loss that reflects their contribution to the defect or failure.
The new liability framework will apply where multiple parties contributed to defective building project work, and a claim is pursued through litigation, adjudication or arbitration.
Mandatory home warranties
The Bill proposes a warranty framework intended to strengthen consumer protection and provide homeowners with greater certainty in the event of defective building work.
Mandatory residential home warranties would be required for:
• New homes;
• Multi-unit residential buildings up to 10 metres in height; and
• Residential renovations valued at $100,000 or more where the work involves restricted building work and requires a building consent.
Warranty products will be required to provide minimum cover of:
• At least one year for defective building work; and
• At least 10 years for structural defects.
The Bill also establishes a registration regime. Warranty providers would be registered with the Ministry of Business, Innovation and Employment (MBIE), the register would be publicly available and include the details of those whose registration has been suspended.
Mandatory Professional Indemnity (PI) insurance
Design professionals such as architects, designers, engineers and surveyors who contribute to the design or compliance of building work through advice or other services will need to have PI insurance.
Further detail on minimum insurance requirements is expected to be developed through regulations.
This represents a significant change for the professional services market and is likely to increase demand for PI insurance products across the building and construction sector.
Power to temporarily suspend warranty and insurance requirements
Recognising the potential for market disruption, the Bill provides a mechanism for the Governor-General, on the recommendation of the Minister for Building and Construction, to temporarily disapply some or all home warranty and professional indemnity insurance requirements.
This power may be exercised where there is, or is likely to be, a material impact on the availability or affordability of these products. Examples could include insurer withdrawal, severe market disruption, or circumstances that may adversely affect housing delivery or continuity within the building sector.
Building sector funding changes
The Bill also proposes changes to building research funding arrangements by combining the Building Levy and Building Research Levy and introducing contestable funding.
Implementation timeframes
The mandatory home warranty, professional indemnity insurance and proportionate liability provisions will come into force one year after the Bill gets Royal Assent. This is intended to provide time for insurers, warranty providers, brokers, construction professionals and regulators to prepare for the new regime.
What this means for brokers
The proposed reforms can be expected to increase demand for both home warranty and professional indemnity insurance products. Brokers will have an important role in helping builders, developers, architects, engineers and other design professionals understand and meet the new requirements.
The shift to proportionate liability may also influence insurer pricing, coverage terms and underwriting appetite, making it important for brokers to stay informed as the reforms progress and the insurance market responds.
The Bill has been referred to the Infrastructure and Transport Select Committee for consideration. A due date is yet to be set for submissions and is likely to close in November 2026. IBANZ will participate in the select committee submission process.
