ACE New Zealand welcomes the Government’s recent announcement to introduce proportionate liability in the building sector. This is a change we’ve been advocating for over several years as a fairer and more appropriate way to manage responsibilities when things go wrong, writes Chief Executive Helen Davidson.
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Why proportionate liability matters
Under the current joint and several liability framework, liability is shared between parties, regardless of the cost or responsibility. This means councils and others viewed as having “deep pockets” often bear a disproportionate share of costs when building defects arise, even when their role was minor compared to other parties.
Proportionate liability ensures each party is liable only for the share of the work they carry out. This approach promotes fairness, encourages innovation and prevents councils – and ultimately ratepayers – shouldering excessive financial burdens.
What this means for ACE members
All ACE members are required to hold at least $500,000 in professional indemnity (PI) insurance as part of their membership obligations. The Government’s announcement supports this commitment and does not change our members’ current requirements. However, it does raise important questions about insurance coverage as the market evolves.
What happens next?
Legislation to change the liability settings will not be introduced to Parliament until early 2026, with a view of passing it by the middle of that year. Between now and then, the Government says it will talk to councils, insurers and consumers about what consumer protection measures would work best, and whether they would be compulsory or voluntary.
What’s ACE advocating for on behalf of members?
We’ve connected with the MBIE policy team involved in this work, and we’ve also written to Building and Construction Minister Chris Penk to request a meeting to find out more detail about the scheme’s development and the next steps.
In particular, we’re keen to discuss:
- Contracting out: This is an issue in Australia, which allows parties to contract out of proportionate liability. We believe allowing entities to “contract out” would undermine what the Government is trying to achieve by moving to a proportionate liability scheme.
- Limiting coverage to claims under the Building Act only: We understand proportionate liability is being considered in relation to Building Act claims only – but councils have responsibilities beyond the Building Act, such as flood modelling and emergency response. Councils have been sued for matters outside the Building Act, including broader construction and infrastructure projects, where others were responsible.
- Litigation complexity: Clarity around the extent and application of the regime in litigation will be key. There’s a risk of introducing complexity and expense where parties need to be joined to a proceeding for their portion of the contribution of loss to be considered.
- Arbitration: Under the standard CCCS contract, arbitration is a standard term, and many local and central government engagements of consultants could be subject to arbitration. There needs to be clarity that proportionate liability would apply to claims being resolved at arbitrations, not just claims through the courts.
- Professional indemnity insurance: While consultants in New Zealand typically maintain PI insurance, coverage varies and often lacks run-off cover, and exclusions for certain risks are also common, which may limit the effectiveness of insurance in supporting the new liability regime.
How can ACE members keep up to date?
We’ll keep you up to date about progress on the move to proportionate liability and any meetings we have with Government ministers and agencies via our fortnightly eNews Let’s talk – sign up using the “subscribe today” button below.