It is changing the law so that those responsible for a defective build must cover their share of the cost.
Currently, all of those involved in a defective build are jointly liable. If one can’t pay, whoever is still standing – usually the local council that issued the building consent – picks up the tab.
Various governments have in the past considered changing the liability regime to prevent councils from being left paying for problems they didn’t cause.
However, a sticking point has always been that the Government can’t effectively force the private sector to provide warranties/insurance for all building work.
In announcing he would still forge ahead with changes, Building and Construction Minister Chris Penk expressed confidence in warranties/insurance being widely available.
He never mentioned the fact the Government agreed to empower itself to suspend mandatory warranties/insurance if they weren’t widely available or affordable.
The Herald became aware of the caveat in the policy by reading government papers, released some time after Penk announced warranties/insurance would be mandatory.
Cabinet agreed a suspension could be imposed at any time, for up to two years. It could then be extended for up to two years.
The Ministry of Business, Innovation and Employment’s (MBIE) view was that there was capacity in the market to respond to warranties/insurance being mandatory. It also saw scope for new providers to enter the market.
However, Cabinet acknowledged there was always a risk the backers of these products quit the New Zealand market, as has happened in the past.
“New Zealand’s insurance market relies on overseas reinsurers, who may withdraw if systemic building defects emerge or following major shocks such as natural disasters,” Penk said in a Cabinet paper.
To prevent the building industry from coming to a standstill if the insurance industry retreated, he said the Government needed to be able to push pause on warranties/insurance being mandatory.
If a home owner found a defect in their home and their builder went bust, they could be left out of pocket without a warranty/insurance under the new “proportionate” liability regime.
Under the existing “joint and several” liability regime, other parties involved in the build would have to pay for the problem – hence only around 46% of new builds are currently covered by defects home warranties/insurance.
Engineers, architects, surveyors and other building industry professionals typically already have professional indemnity insurance.
While MBIE supported the changes the Government is pushing ahead with, it had a different view after consulting more widely on the matter in 2019.
In 2019, MBIE said: “Proportionate liability wouldn’t protect home owners from financial loss, and may deter guarantee and insurance providers from entering the market due to the lower likely recovery of damages from others in the system.
“Home owners would find it hard to show how much each defendant contributed to their loss. Court costs are likely to increase as the parties dispute their proportion of contribution.”
In 2019, MBIE recognised warnings from the industry that it might not be able to provide widespread coverage.
The Insurance Council told the ministry: “Currently, builders warranty insurance in New Zealand is sold by just two providers that are backed by one syndicate at Lloyd’s of London. It should not be assumed that Lloyd’s will be able to provide further capacity in the future, or even to maintain the current level of capacity.
“Lloyd’s capacity for this type of long-tail business can vary from year to year and is influenced by claims performance, changes in the global financial markets, and regulatory requirements and legislative changes both here and in the United Kingdom.”
Lloyd’s did in fact exit the market, returning to underwrite an offering by Stamford Insurance.
In September Stamford’s founder Duncan Colebrook echoed the 2019 warnings, telling the Herald Stamford was selective when it came to the building work it insured.
He said that if the Government wanted to guarantee consumer protections were in place, it would need to provide these itself.
Master Builders and Certified Builders – the other two warranty providers (which are self-funded/aren’t backed by Lloyd’s) were open to expanding their coverage. They offer warranties on work done by the builders they certify.
Penk believed buildings standards would rise once more builders were pushed to certify with a member organisation or get an insurer to back their work.
Home Owners and Buyers Association chief executive Roger Levie completely opposed the shift in liability, fearing home owners risked being left exposed – especially if the requirement for warranties/insurance was suspended.
He said the Government was short-sighted and the law change would have significant impacts downstream.
The changes are expected to take effect a year after the Building Act is amended – likely later this year.
MBIE provided the chart below in its advice to Penk in October, which summarised the cover offered by the three main providers of warranties/insurance.
Comparison of main building warranty and insurance products available in New Zealand as at October 2025. Table / MBIE Regulatory Impact Statement
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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