Examples of Builders’ Liability for errors

Construction insurance and risk expert Ben Rickard highlights situations where a residential builder may still be exposed to liability for errors made by other professionals working on a project.

Even if the builder didn’t directly engage the services of those professionals. This is the basis for many cases where builders are joined to legal action against designers, engineers and surveyors alleging errors by those professionals.

Even if the builder is found not liable, they can still incur many thousands of dollars of legal defence and expert costs.

Example 1 – Engineer's structural design error

Scenario
The homeowner appoints a structural engineer to design the foundations for a new home.
The engineer specifies insufficient reinforcing steel in the foundation.
The builder constructs the foundations exactly in accordance with the engineering drawings.
Several years later, the foundations crack because the engineering design was inadequate.

Potential Liability
If the reinforcing deficiency was something an experienced builder ought reasonably to have recognised and queried, the builder may still be found partly liable.

For example: 

• Engineer – 80%
• Builder – 20%

Under a proportionate liability regime:

• The engineer would be responsible for 80% of the loss.
• The builder would still be responsible for 20% because they failed to question an obvious defect. 

Example 2 – Architect's defective weathertightness detail

Scenario
The owner engages an architect to design the home.
The architectural drawings include an external deck junction that does not provide adequate weatherproofing.
The builder notices the detail appears inconsistent with accepted building practice but installs it exactly as shown.
Water penetrates the building and significant damage occurs.

Potential Liability

A court may conclude:

• Architect – 70% 
• Builder – 30% 

The architect is responsible for the defective design.
The builder is responsible because an experienced builder should have recognised the obvious defect and raised the issue before construction.
Key point: Following the plans is not always a complete defence if the defect should have been apparent.

Example 3 – Surveyor's set-out error

Scenario
The owner appoints a surveyor to establish the building position.
The survey pegs differ from the consented site plan, but the discrepancy is obvious.
The builder proceeds without seeking clarification.
The completed house is later found to encroach over a boundary.

Potential Liability
A court may apportion responsibility:

• Surveyor – 90% 
• Builder – 10% 

Although the surveyor caused the error, the builder may still bear responsibility for failing to question an obvious inconsistency.
Key point: Builders remain expected to exercise reasonable skill and judgment rather than blindly rely on information supplied by others.

Example 4 – Defective waterproofing by a subcontractor

Scenario
The builder engages a waterproofing subcontractor to install a bathroom membrane.
The membrane is installed incorrectly, resulting in water ingress and significant damage.
The builder had no direct involvement in the installation.

Potential Liability
Under the Building Act 2004, the principal contractor is generally responsible for residential building work carried out by subcontractors for the purposes of the statutory implied warranties.
Even under a proportionate liability regime, the builder may remain legally responsible for the subcontractor's defective work unless the Building Act is amended.

For example:

• Builder (including responsibility for subcontractor's work) – 100%

The builder may pursue the subcontractor separately, but that does not necessarily reduce the builder's liability to the homeowner.
Key point: Proportionate liability does not automatically remove the builder's statutory responsibility for subcontracted residential work.

Risk Mitigation and Insurance

The best way to minimise the risk of this happening to builders is a combination of clear contractual responsibility, good documentation and appropriate insurance. Builders should ensure their contract states they are not responsible for the adequacy of designs or professional services provided by the owner’s consultants. 

They should document and refer apparent design issues back to the relevant professional rather than making design decisions themselves. 
For specialist subcontractors, where the builder may not have the competence to supervise them, use suitably qualified, licensed and insured trades. You should also require evidence of liability insurance and avoid accepting responsibility for technical matters outside your competence.

Design & Construct Professional Indemnity insurance, like that provided by Builtin, can provide an important additional safety net where builders are taking on design & build responsibility, including when they may be dragged into these issues when the errors are made by consultants engaged directly by the owner.

Lastly, make sure you have good professional advisers supporting your business, such as a specialist construction insurance broker, lawyer and contract manager. Organisations like The Building Hub provide expert advice, contracts and other resources, as well as professional contract management and dispute resolution services.