The legal landscape for engineers in New South Wales has undergone significant changes due to the recent court decisions affecting the application of proportionate liability. These developments have substantial implications for engineering professionals, particularly regarding liability and insurance coverage.
Understanding proportionate liability
Proportionate liability is a legal framework that allocates responsibility among multiple parties who have contributed to a loss or damage. Under this regime, each party is liable only for their specific share of the harm caused. This approach has been a cornerstone in construction and engineering sectors, ensuring that liability is distributed fairly among all contributing parties.
Recent legal developments
In December 2024, the High Court of Australia delivered a pivotal judgment in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd. The court ruled that developers and head contractors cannot rely on the proportionate liability defence under the Civil Liability Act 2002 (NSW) when facing claims for breaches of the statutory duty of care established by the Design and Building Practitioners Act 2020 (NSW) (DBP Act). This decision effectively removes the ability of these parties to apportion liability to others, such as subcontractors or consultants, in certain circumstances.
Implications for engineers in New South Wales
For engineers operating in NSW, this ruling has several critical implications:
- Increased liability exposure Engineers may now bear full liability for defects or issues arising from their work, without the ability to shift portions of this liability to other parties involved in the project.
- Contractual considerations Given that NSW law allows parties to contract out of the proportionate liability regime, engineers must carefully review contractual terms to understand the extent of their liability. Agreeing to contract out of proportionate liability can lead to assuming liabilities that might not be covered under standard professional indemnity insurance policies.
- Insurance coverage challenges Standard professional indemnity insurance policies often exclude coverage for liabilities assumed under contract that exceed those imposed by law. This means that if an engineer agrees to contract out of proportionate liability, they might find themselves without insurance coverage for certain claims.
“Engineers are increasingly being asked to assume broader liabilities through contract, often without realising the potential insurance implications. That’s why we work closely with our clients to identify these exposures early and help ensure their coverage reflects the risks they’re actually taking on.”
Maria Vidic, Broking Operations Manager at EngInsure
Potential national implications for engineers
While the High Court decision applies directly to New South Wales, its ripple effects could extend across Australia. Legal experts suggest that this ruling may influence how proportionate liability is interpreted in other jurisdictions, prompting a re-examination of existing legislation or sparking judicial decisions with broader reach.
In addition, the High Court’s decision in Tesseract International Pty Ltd v Pascale Construction Pty Ltd confirmed that proportionate liability laws apply to arbitrations conducted under Australian law. This has wide ranging implications for engineers, as it means proportionate liability regimes may come into play even in arbitration settings – unless parties have explicitly contracted out.
Together, these developments point to a growing need for engineering professionals nationwide to:
- Monitor changes to proportionate liability frameworks in their state or territory
- Review and, where necessary, renegotiate contracts that may include proportionate liability clauses
- Ensure their insurance policies respond to liabilities assumed through contract or arbitration
Regardless of location, engineers across Australia should be proactive in understanding how shifting legal interpretations could expose them to greater risk – and how insurance solutions EngInsure can help bridge the gap.
How EngInsure can help
At EngInsure, we recognise the evolving challenges that engineers face in light of these legal changes. Our specialised insurance solutions are designed to provide coverage that addresses liabilities which might typically be excluded under standard policies. We can source:
- Comprehensive coverage Policies that encompass liabilities arising from contractual agreements, including situations where proportionate liability has been contracted out
- Risk management support Expert advice on contractual terms to help engineers understand and mitigate potential liability exposures
- Claims assistance Dedicated support to navigate the claims process effectively, ensuring that our clients receive the protection they need when it matters most
Next steps for engineers
The recent changes to proportionate liability legislation in NSW underscore the importance of being vigilant about your contractual obligations and the scope of your insurance coverage. EngInsure is committed to supporting engineering professionals with tailored insurance solutions that adapt to these legal developments, so you can continue your work with confidence and security.
To learn more about how EngInsure can support you in this changing environment, get in touch with our team today.
The contained information is general advice only. It is not intended to take the place of professional advice. Before acting on this information you should consider the appropriateness of this advice to your particular objectives, needs and financial objectives. Contact Whitbread Associates Pty Ltd | ABN 69 005 490 228 | License Number 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
