Recently, Victoria introduced two pieces of legislation as part of changes which will, from 1 July 2026, fundamentally reshape Victoria’s domestic building insurance regime:

• On 15 May 2026, the Building (Statutory Insurance Scheme) Regulations 2026 (Regulations) were promulgated, which detail how, when, and what claims can be made under Victoria’s new First-resort Home Warranty Scheme for single dwelling domestic buildings and apartments in buildings of 3 storeys and less (FHWS); and
• On 16 June 2026, the Building Legislation and Treasury Legislation (Tax Relief) Amendment Act 2026 (Act) was passed, which proposes an option for developers to take out decennial insurance as an alternative to developer bonds required for apartment buildings of more than 3 storeys.

The shortcomings of the existing ‘last resort’ domestic building insurance scheme (DBI) and the general structure of the new FHWS were discussed in our previous article: Substantial changes to Victorian residential building legislation.

Under the existing DBI scheme, policies issued by the VMIA do not respond to claims for defective or incomplete works until the builder’s death, disappearance, or insolvency, or until an order on the merits has been obtained from VCAT or a court. These are either extreme, unlikely, or (for owners) costly scenarios.

Under the FHWS, a claim may be made when loss is incurred due to incomplete, defective, or non-compliant domestic building work. Waiting periods apply for certain claims as discussed below but, in general, the right to claim crystallises far earlier than under DBI.

The entire claim process will be managed by the Building and Plumbing Commission (BPC).

The builder will be given an opportunity to rectify or complete works. Should it fail to do so, the BPC will assess the claim and may provide ‘assistance’ to owners in the form of funded rectification or completion works or compensation.

The BPC will manage claims under VMIA policies issued prior to 1 July 2026, which will continue to apply on their terms. The FHWS does not apply to residential apartments of more than three storeys. For such buildings, developer bonds of 2% of the total build cost are required from 1 July 2026 except:

• on projects where a building permit has been issued or where one is issued by 30 June 2027; or
• where the developer elects to take out decennial insurance (DI), which is discussed in more detail below.

These new insurance arrangements should be viewed in the context of wider building regulatory reforms, including the BPC’s power to issue rectification orders, the aim of which is to mitigate recourse to insurance and developer bonds in the first place.

Key features of the FHWS

What is covered?

Defective, non-compliant, or incomplete building work under an ‘insurable domestic building contract’ being a contract for more than $20,000 involving the construction of one home, or 2 or more homes in a building with a rise in storeys of 3 or less.

Exclusions apply, including many under the current VMIA policies, for example, claims for consequential loss and loss of rent. One notable exception is in respect of structural or serious defects caused by defective design of an architect or engineer. Such claims were excluded under the DBI/VMIA regime but are now covered.

Who can claim?

Claims can be made by ‘persons for whom building work is carried out’ and subsequent owners, including owners corporations in respect of common property.

The builder and associated persons or entities cannot claim. Nor can a vendor or developer under a residential off-the-plan contract.

Who pays the premium?

As with the current DBI, the builder is required to pay the premium.

To address what occurred with Porter Davis Homes in 2023, cover applies upon signing the building contract or commencement of works (whichever is earlier) even if the builder fails to pay the premium. The BPC may pursue the builder for unpaid premiums.

What is the maximum claim?

The monetary caps on cover per dwelling will increase from $300,000 to $400,000.

Claims by owners corporations in respect of common property fall within this cap in proportionate shares for each lot owner. There is no separate $400,000 cap for common property.

A sub-limit of 30% of the contract sum will apply for incomplete work. Further sub-limits apply to accommodation, removal, and storage costs and costs to secure the building.

Time limit for lodging claims with the BPC

For defective/non-compliant work — owners or owners corporations have 12 months to notify the BPC from when they become aware, or ought reasonably to have become aware, of a defect or non-compliance.

For incomplete work — owners or owners corporations have 12 months to notify the BPC from an ‘insurable domestic building contract event’ (which includes death, disappearance, deregistration, insolvency, and, importantly, valid termination).

When does cover expire?

Subject to the above notices being served, cover expires 6 years after completion for loss arising from a major defect or non-compliance and after 2 years from completion for other defects and non-compliances.

This appears to address an ambiguity in wording in clause 34 of the VMIA policy, which provides cover for ‘loss or damage arising from a non-structural defect occurring during’ a period ending two years after completion.

In Victorian Building Authority v Fall-Armytage [2026] VSCA 32, the owner discovered non-structural defects after he purchased the property, which was also after the 2-year period. He argued that clause 34 meant that as long as the defect existed during the coverage period, which it did, any economic loss arising at some later time should also be covered. He contended that a contrary reading would defeat one of the purposes of the legislated framework, namely, to extend the indemnity under the policy and Section 9 of the Domestic Building Contracts Act for defective works to subsequent purchasers.

The Court of Appeal disagreed and held that the VMIA policy required economic loss to have occurred within the relevant period, not merely the defects.¹ The owner has sought special leave from the High Court to appeal the decision.

These issues do not appear to arise under the FHWS. Cover simply expires after the above periods regardless of when the loss arises and the owner in the above scenario would have no claim. However, a claim appears possible by a subsequent owner acquiring the property within the period of cover.

What is the earliest date by when assistance will be provided?

Waiting periods apply before the BPC will render assistance depending on whether works are under a cost-plus contract or not.

For works performed under a cost-plus contract, the earliest date for assistance for defective or non-compliant work is once the contractual date for practical completion has passed. Due to difficulties in pricing premiums where the scope and expiry date are unknown, there is no assistance at all for incomplete work under a cost-plus contract.

For all other types of contracts, assistance is deferred until the contractual date for practical completion or the occurrence of an ‘insurable domestic building contract event’, which includes a valid termination.

Subrogation

To the extent assistance is rendered, the BPC will have rights of subrogation against builders and others at fault, including designers and suppliers of defective or non-compliant materials.

What is the process for making a claim?

Subject to limited exceptions, the process commences with a complaint against the builder, and a notice of claim lodged with the BPC on its website, both in a prescribed form.

The builder has 28 days to respond to the complaint, failing which the BPC must decide the claim within 9 weeks.

If a claim is declined, the owner may apply to VCAT for a review of that decision within 28 days of either the decision or a statement of reasons provided under section 46 of the VCAT Act.

Decennial Insurance

The Act introduces DI as a voluntary alternative to developer bonds, either of which will be required from 1 July 2026 for residential apartment buildings with a rise of more than 3 storeys.

Developer bonds of 2% of the build costs must be lodged with the BPC before an occupancy permit can be issued. They remain in place for between 18 and 24 months after occupation and in some cases for longer. For more detail on developer bonds, see our previous briefing note here.

Salient features of the DI are as follows:

• A 10-year, ‘first-resort’ insurance policy, which protects owners of residential buildings and owners corporations from the costs of fixing defects of a more serious nature. This includes, for example, unsafe building products, defects in fire safety systems, waterproofing, structural and load-bearing components, and mechanical, plumbing, electrical, and lift services (relevant defects).
• Will provide cover on a ‘no-fault’ basis. In effect, the policy will respond if a relevant defect arises. It will be unnecessary to establish which of the builder, designer, supplier, or other third parties are at fault.
• No occupancy permit can be obtained without decennial insurance or a developer bond in place.
• Requirements for decennial insurance products will be approved by the BPC. Notably, the policy will be issued to the developer and can be novated to the owners corporation upon creation. Owners corporations may claim without the consent of lot owners irrespective of whether the claim relates to common property. Other requirements are likely to be fleshed out by later regulations.
• Designated insurers will be subrogated to the rights and remedies of the owners corporation and the lot owners against any person or entity responsible for the relevant defect, including designers. Those rights are enforceable jointly and severally against the entity and any of its officers at the time of the relevant act or omission unless it occurred without knowledge or consent.
• Regulations will flesh out other terms such as the minimum level of cover.

Pros and cons of DI cover

In NSW, where decennial liability insurance (DLI) was introduced in 2022 as an alternative to the building bonds, the uptake has been relatively slow but is steadily expanding as the market matures.

If successful in Victoria, DI may be the option of choice. For owners and developers, developer bonds are less preferable as they have a limited duration and value. In NSW, DLI provides cover up to the full construction cost value of the building works, which could be considerably more than the 2% developer bond.

DI could free up working capital for developers that would otherwise be locked up for several years as cash deposits or bank guarantees under the developer bond scheme. Properties with DI are likely to be more attractive to wary off-the-plan purchasers.

Developers may also be less likely to be involved in disputes than with a developer bond. A claim by an owner on a developer bond could trigger a claim by the developer against the builder and a potential multi-party dispute.  A subrogated claim by a DI insurer will generally be against the builder or designer. There are limited avenues for subrogated claims by a DI insurer against the developer. One possibility is a claim during any defect liability period under a contract of sale, but this can be as short as 3 months.

For builders and designers, DI gives rise to greater risk. Both are exposed to subrogated claims by the insurer over a 10-year period and their directors and officers may be personally liable. The latter should ensure that they are either ‘insured persons’ under their professional indemnity policies or that D&O insurance is in place.

Conclusion

There is undoubtedly much in these changes that could restore consumer confidence in a beleaguered construction industry, particularly new-build apartments. A lingering concern is that they may also add to the cost of construction and be a further disincentive to undertake projects.

This article was written by Brian Rom, Partner and Estelle Ruyssenaers, Associate.

¹ The decision turned largely on the position of a comma in clause 35 in the VMIA policy, a coordinate provision to clause 34.