On 16 March 2026, the Supreme Court of Victoria handed down a decision in the case of Owners Corporation 1 Plan No. PS 640567Y & Ors v Shangri-La Constructions Pty Ltd [2026] VSC 117 (“Shangri-La”) which has conceptualised what may be a significant gap in insurance protection for construction professionals and company directors arising from the ongoing saga of “combustible cladding”.
The case concerns personal liability imposed on a managing director of a Design & Construct contractor under the statutory provisions of the Building Act 1993 (Vic) (BAV) and raises important questions about how professional indemnity (PI) as well as directors’ and officers’ or management liability policies may respond to what has been a growing claims trend for construction professionals since Lacrosse in 2014 and Grenfell Towers in 2017.
Case summary
The State of Victoria obtained judgment of approximately $3.17M against the managing director personally. This liability materialised under s137F(3) of the BAV which is a strict liability provision imposing personal responsibility on company officers for non-compliant EPS cladding. The director had personally been involved in the specification of the cladding and had sought indemnity under historical professional indemnity policies accordingly. The Court rejected the claim under those policies on two independent grounds:
“Claims Made” means Claims Made
The policies had expired before the statutory regime came into effect. Liability could not legally arise during the policy period, and as such there was no valid claim trigger, regardless of factual connection to earlier matters. For details on claims made insurance see our article here.
Liability said to be “outside” the conduct of professional services
Critically, the Court found that liability arose because the individual was a director, not because he provided professional services. This being the case even though the conduct involved design, advice and specification. In consideration of the same the legal character of the liability was managerial/statutory in nature.
Why the decision is significant for construction professionals
This decision draws a clear line between what you do (professional work), and why you are legally liable (your capacity and duties as a director). This distinction has profound insurance implications which ultimately proved fatal to indemnity under the PI policy.
PI policies often exclude directors and officers claims; and likewise, D&O policies exclude claims for professional services. Our article on the coverage intended by the policies may be found at Directors & Officers Liability Insurance and Professional Indemnity Insurance.
The decision exposes coverage issues for construction professionals as whilst a claim may be characterised as managerial in nature (and therefore not covered by PI), it may simultaneously be treated as arising from professional conduct (and therefore excluded under D&O). This creates the potential for a gap where neither policy responds.
Key implications: construction professionals
Our construction professionals clients should consider the following:
Statutory liability risk is increasing
Legislative regimes (particularly post-2020 cladding reforms) are increasing personal liability for directors, often on a strict liability basis. These liabilities may not align neatly with traditional insuring clauses.
Legacy policies may be inadequate
Policies written prior to recent legislative changes may not contemplate these liabilities and may fail at both the trigger and coverage characterisation level. The issues regarding narrowing coverage are traversed in our article here.
The take-away: claims-made policies require careful management
Where liability arises from later statutory developments, earlier policies may not respond and a ‘continuous coverage’ strategy becomes critical to ensuring optimal coverage, particularly for construction professionals.
Being at the forefront of construction professionals’ risk, our team has commenced discussions with underwriters to ensure structural considerations to policies so that coverage materially reduces the exposure that has materialised from Shangri-La.
For those who are not Bellrock clients, programmes should be reviewed holistically to ensure there no unintended gaps between professional and managerial cover, and there is appropriate interaction between policies.
Key takeaway
This decision reinforces that insurance coverage follows the legal characterisation of liability – not simply the underlying conduct. For construction professionals, particularly those operating in dual capacities (technical and directorial) this creates a need for more deliberate programme design. They should seek expert advice from a specialist who intimately understands their profession to help them navigate nuanced risk trending issues.
