The case decision of Victorian Building Authority v Fall-Armytage was handed down by the Court of Appeal on 6 March 2026. The case clarifies the timing of cover and allocation of loss under Domestic Building Insurance (DBI) policies. While the case concerns DBI, it provides important guidance on circumstances that may arise under commercial construction insurance policies.
In this decision, the Court confirmed that cover under a DBI policy is triggered when loss or damage is sustained, not when the underlying defect occurred. Where defective work arises during construction, indemnity is available if the resulting loss or damage occurred within the policy period.
The earlier approach, which effectively tied cover to when defects arose, thereby creating long-tail exposure for insurers, has been firmly rejected by the Court (see paragraphs 37, 59-60). The Court also confirmed that successors in title must prove their own loss independently and cannot recover loss suffered by prior owners.
Although the case concerns DBI specifically, its reasoning has broader application and offers useful context across the following core lines of insurance:
Contract works
A contract works policy is typically structured across two distinct sections, section 1, which provides material damage cover, and section 2, which provides liability cover. The judgment has meaningful implications for both.
Under Section 1 material damage, the judgment reinforces that cover responds to physical loss or damage during the policy period, not the existence of defective work itself. While defects may exist from the start of construction, unless and until ‘damage’ is caused within the period of insurance, there is no trigger for cover under the policy. This is particularly relevant when projects transition from construction to defects liability and then into operational phases; gaps can and do emerge.
The liability section of the policy (section 2) does not follow the defect, rather, it follows the damage it causes. There must first be actual third-party property damage, and it must occur during the period of insurance. If damage falls outside the period of insurance, no trigger for cover applies.
Industrial special risk
Industrial special risks (ISR) policies similarly contain material damage cover under Section 1 and operate on the same occurrence basis, namely that damage must occur during the period of insurance to trigger cover. Defects that only become apparent or cause damage after the policy has expired will not be covered, unless specific extensions apply.
This is a distinction which policyholders frequently overlook. The assumption that a defect arising during construction will be covered when it later causes damage during the operational phase is a common one. This case decision underscores that distinction.
Professional indemnity
For professional indemnity policies, while the trigger for cover is claims-made rather than occurrence-based, the same conceptual discipline applies. The focus is on when the claim is made and notified, not when the advice or error occurred. The judgment emphasis on policy wording and temporal triggers reinforces that the Courts will not readily bridge gaps between when the construction work (or defective work) is performed and when liability crystallises.
Decennial liability
Decennial Liability policies, which are designed to respond to defects that manifest over an extended period following completion, may be worth considering in this context. Unlike standard annual Contract Works policies, they are specifically structured to address the kind of delayed defect manifestation that a conventional occurrence-based policy will not pick up.
The judgment reinforces a strict temporal approach to cover; that is, unless a policy is expressly designed to respond to the delayed manifestation of defects, it will not be interpreted to do so.
From Bellrock’s perspective, however, it is important to understand what decennial insurance does and does not do. It does not cover poor construction as such. Instead, it responds where works appear sound at completion but subsequently prove defective. Where a defect is visible or discoverable at the outset, there is a real risk that no policy will respond, and that is a conversation worth having with your risk advisor as early as possible.
Conclusion
In summary, the key takeaway for policyholders is that insurance does not follow the life of a defect rather, cover responds to and follows the policy trigger. There are three key timelines in play which should be considered:
- When the construction work was carried out,
- When the defect exists, and
- When loss or a claim arises.
Each of the policies considered above will only respond where the relevant trigger, this being loss, damage or liability, falls within the period of insurance. Where timelines are misaligned, uninsured exposures can and do arise.
In practice, this means careful attention must be given to transition points between policies, particularly given that responsibility for risk moves between contract works, property and ISR, and liability covers. It also highlights the importance of adequate defect and maintenance provisions as well as the need for insurance risk transfer products that address delayed manifestation of defects. This is of particular importance for developers, asset owners and buyers who often rely on historical cover in transactional contexts.
The judgment reinforces a strict and wording-driven approach to the timing of cover. Bellrock’s role as a risk advisor is to ensure our clients understand that their exposure often sits, not in whether something went wrong, but in when the financial consequence emerges relative to the policy in force at that time.
