‘Three years of sheer hell’: Owners of homes ravaged by defective plumbing fight for compensation

Victorians whose homes have been destroyed by plumbing defects are being denied compensation because insurance companies are incorrectly capping payouts at $50,000 – a practice stretching back years and leaving some victims millions of dollars out of pocket.

Lawyers and the plumbing industry have called for an inquiry into the problem after the issue was raised in a damning report into the Victorian Building Authority.

Cathy O’Connell was denied compensation from her insurers after her property was damaged by defective plumbing.Credit: Luis Enrique Ascui

Plumbers are legally required to take out a basic level of insurance, protecting home builders and renovators if their construction is damaged by defects, and providing them with an avenue for compensation if plumbers cannot afford to repair it.

But the Victorian Building Authority has been warned that insurers are breaching this law and denying Victorians access to compensation. It has been alleged the minimum coverage of $50,000 is being used as a maximum for all types of claims.

The Age has seen multiple contracts for major insurers that describe the $50,000 as a maximum. They also say the most they will pay across the entire life of the policy is $5 million.

The law has been in place since 2002, and even the authority’s website incorrectly claims there are limits on how much can be paid. It says the maximum for domestic plumbing work is $50,000 and $5 million for public liability.

Chartered loss adjuster Dave Pockett, who has worked in the insurance industry and now represents consumers, says this is wrong.

He said the law set out a mandatory insurance for plumbers and had a combination of protections for defects, resultant damage, consequential financial losses, death or disappearance of the plumber and legal costs.

“The supposed $50,000 cap for defects is only a sub-limit in a much larger policy,” Pockett said.

“Sadly, what’s been happening is that most of the insurers have been trying to fool people by stating that there is a maximum $50,000 payable on any claim, no matter what has happened or how much damage has been done.

“That’s completely untrue and deceptive and represents a lack of utmost good faith. The same line has also been taken by many of their external lawyers and loss adjusters.”

Pockett said the law contained mandatory provisions that the insurer had to comply with, and any variations needed to be explicitly spelled out. Despite this, he said insurers were incorrectly telling customers their policy overruled the law.

If the insurers were threatened with legal action by customers, they often settled confidentially before it went to court, Pockett said.

“The [legal] order is all about protecting consumers. The insurers haven’t wanted any test cases because they realise it would be extremely risky,” he said.

“If they did proceed to court and lost, that would set a serious and very costly precedent for themselves and every other insurer in the market.”

Pockett said the figures in the law had not been indexed since 2002, and that $50,000 for defects cover was “totally inadequate” for a $500,000 house after it had to be torn apart, rectified and put back together.

Master Plumbers Association of Victoria chief executive Peter Daly said the Victorian Building Authority should not reissue licences for plumbers who weren’t covered properly, and called for a full review.

“All plumbing insurances are required by law to meet the requirements of the ministerial order, but we have seen instances where policies have exclusions for some types of work or the cover limits are not adequate,” he said.

“The current ministerial order for plumbing insurance has had no significant updates since it was enacted in 2002. Clearly, the built environment, the plumbing industry, the insurance market and consumer needs have evolved over the past 22 years, and the ministerial order is no longer fit for purpose.

“Master Plumbers has called on the Victorian government to work with us in a comprehensive review to modernise the ministerial order, and this work has commenced, albeit we would like it to progress at a much faster rate.”

A report into major failures in the Victorian Building Authority, published in October, said it had received allegations insurers were using exclusions to reject claims, contrary to the law.

It said it appeared some insurers might be “behaving poorly” and recommended the government take further action, including investigating whether the problems were widespread.

In one case study examined by the report, a woman renovating a house and building four townhouses had underground drainage laid and slabs poured when the project suddenly came to a halt. The original builder and then second builder both went into administration.

Both properties have been sitting untouched since May 2022. The defects are so significant, the developments will need to be demolished and re-engineered, costing hundreds of thousands of dollars.

Cathy O’Connell, the woman in that case study, told The Age the saga had left her millions of dollars out of pocket, but she was repeatedly told by solicitors that $50,000 was the cap for any payout under Victorian law. She said senior management at all three insurance companies were aware of her claims.

Blocked drains at the property.

O’Connell is considering adding insurers Chubb, Protecsure and WFI to her court case, in which she is seeking hundreds of thousands of dollars in defect rectification costs, major consequential losses and the difference in build price.

“It has been three years of sheer hell,” O’Connell said. “The plumbing has collapsed underground on both sides and is dangerously defective and non-compliant, and the insurers just deny, deny, deny.

“They try to physically, emotionally and financially exhaust you ... I want this to end and get my life back.”

O’Connell said the law had “prohibited provisions” which were designed to stop insurers limiting claims. This clause says policies should not limit indemnity related to defects involving “any loss or damage to that part of the property on which the plumber is working and which arises out of that work” and the cost of inspection, repairing and replacing component parts of the plumbing work.

The Victorian Building Authority has issued notices to two insurers involved in O’Connell’s properties compelling them to provide information for investigation. They have jurisdiction over plumbers who do not have the required insurance but not over insurers who refuse claims.

“The VBA is investigating allegations the insurance policies of two plumbers subject to the Weir review were unlawful,” an authority spokesperson said.

The Allan government is considering recommendations from the report that highlighted plumbing insurance as an issue.

“We’re overhauling the building regulator to ensure we can better protect Victorians building, renovating or buying a home – giving them greater peace of mind,” a spokesperson said.

An Insurance Australia Group spokesperson, a parent company of WFI, said their policies complied with the law, which they claimed was a maximum of $50,000 for defect compensation and $5 million for “public and completed work liability”.

“We will continue to work with governments, regulators and the industry on any insurance policy-related matters,” they said.

Chubb not did not respond to questions. Protecsure did not respond to questions about the $50,000 limit, and would not comment on O’Connell’s claims because her policy is underwritten by Berkley Insurance Australia.

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