Court Of Appeal Rules That Coverage Is Tied To The Timing Of The Loss, Not The Defect

The Victorian Court of Appeal has confirmed that loss and damage, not the underlying defect, must occur within the policy period for the purposes of the Domestic Building Insurance policy, and successors in title must prove their own loss in establishing a breach of the statutory warranties in the Domestic Building Contracts Act.

In issue

• In March 2026, the Victorian Court of Appeal delivered a significant decision addressing the interpretation of a Domestic Building Insurance policy (DBI policy).
• The key question for consideration in the appeal was whether the phrase in clause 34 of the DBI policy, ’occurring during the period‘ referred to the timing of the defect or the timing of the resulting loss or damage.

The background

In 2013, the owner of land in Caulfield South entered a domestic building contract with a builder for the construction of a residential dwelling on the land. A DBI policy was issued for the works, which were completed in 2014. The DBI policy would only be triggered if the builder died, disappeared or became insolvent.

In 2018, the respondent acquired the property and noticed water damage, including a water stain, mould on the ceiling, and water ingress following heavy rainfall.

The respondent made a claim under the DBI policy after the builder was placed in voluntary administration. The claim comprised 16 alleged defects relating to waterproofing and other issues. The applicant denied the claim in 2023 on the basis that the two-year period of coverage for non-structural defects expired in November 2016.

The respondent commenced County Court proceedings against the applicant and two other parties who had performed plumbing works at the property. While the claims against the latter parties were settled, the respondent pressed his claim for the remaining 11 non-structural defects against the applicant.

The central issue in the proceeding was the interpretation of clause 34 of the DBI policy which provided cover for 'loss or damage arising from a non-structural defect occurring during the period commencing on the commencement date and ending 2 years after completion of the work.'

The decision at trial

At trial, the County Court ruled in favour of the respondent, interpreting clause 34 to extend cover to defects occurring within the coverage period, even if the resulting loss or damage manifested later. The applicant was ordered to indemnify the respondent in the amount of $176,297.76.

The decision on appeal

On appeal, the applicant argued that the primary judge erred in his construction of clause 34. The respondent contended that the trial judge’s decision should be upheld, even if the applicant succeeded on the point of construction, because the respondent was entitled to rely on the statutory warranties in section 8 of the Domestic Building Contract Act 1995 (Vic) (statutory warranties).

The Court of Appeal found in favour of the applicant and reversed the primary decision. It held that it is the loss and damage that must occur within the coverage period, not the underlying defect/s. As to the statutory warranties, the Court clarified that successors in title cannot rely on the loss and damage suffered by previous owners. Instead, subsequent owners must prove their own loss and establish a causal connection between that loss and any alleged breaches of statutory warranty.

Implications for you

This ruling provides critical clarity on the scope of coverage under DBI policies, limiting claims to loss and damage suffered within the coverage period rather than defects occurring during that timeframe.

The decision is also significant in that it constrains the 'long-tail' liability for insurers by confirming that successors in title cannot recover for loss and damage suffered by previous owners. Instead, subsequent owners must demonstrate their own loss and its connection to a breach of statutory warranties.

Victorian Building Authority v Fall-Armytage [2026] VSCA 32

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