This is the second of our articles exploring issues arising from the Government’s proposed switch to proportionate liability from the current setting of joint and several liability.
In our first article in this series Upcoming change from joint and several liability to proportionate liability, we explored the practical difference between joint and several liability and proportionate liability. In simple terms, joint and several liability allows a claimant to recover the full loss from any one responsible party, leaving that party to sort out contribution issues later. Proportionate liability takes a different approach: each party is only responsible for its share. If another contributor cannot meet their portion of liability, the gap is not redistributed – it remains.
On 24 November 2025, the Government released some detail on how it proposes to protect homeowners under the new settings. The package includes mandatory home warranties for certain residential buildings, compulsory professional indemnity insurance for design professionals, and increased disciplinary consequences for licensed building practitioners who act negligently.
These measures are intended to reduce homeowners’ exposure to unrecoverable loss under a proportionate liability regime. Whether they will do so in practice remains an open question.
Home warranties: broad coverage, but a clear boundary
The proposed mandatory home warranties will apply to residential buildings of up to three storeys, as well as to higher-value renovations involving restricted building work and requiring a building consent. In New Zealand terms, that is a wide net. Most homes are low-rise, meaning a significant proportion of homeowners will benefit from a defined defects period and longer-term structural cover.
In a proportionate liability environment, that protection matters. Where a builder or developer later fails, a warranty can provide an alternative pathway to recovery – one that does not depend on identifying, suing, and enforcing judgments against multiple parties.
However, the three-storey boundary is significant. Apartment buildings and other higher-density residential developments will largely sit outside the warranty regime. This is not merely theoretical. Some of New Zealand’s largest and most complex defect cases (Auckland Harbour Suites (formerly Harbour Oaks), Spencer on Byron and Nautilus Apartments) – have arisen from multi‑unit medium to high-rise apartment developments, where remediation costs have reached tens of millions of dollars and claims are pursued by bodies corporate comprised of individual owners.
This exclusion reflects an approach adopted in parts of Australia, where mandatory home warranty schemes commonly draw similar limits. The policy rationale is clear: taller and more complex buildings present different risk profiles, require greater coordination, and involve remediation costs that are difficult to insure at a price homeowners will accept.
Queensland provides a useful illustration. There, the QBCC home warranty scheme applies to most residential building work above a modest threshold, but excludes buildings that rise more than three storeys above a car park. The scheme can still accommodate several levels of parking beneath low-rise residential units, but it draws a firm line around higher-rise construction.
The effect of this approach, however, is that the homeowners who are arguably most exposed to high value loss – those in high or medium rise multi-unit apartment developments – are often the least protected when things go wrong.
The unresolved apartment problem
Most apartment developments are delivered through special purpose vehicles and sold to individual purchasers, including first-home buyers, retirees, and working professionals. When defects emerge, often years later, the developer entity may no longer exist, and the body corporate is left to pursue claims against a shrinking pool of solvent defendants.
Under joint and several liability, that exposure was frequently absorbed elsewhere in the system. Under a proportionate liability regime, it is more likely to fall directly on owners themselves.
This creates a policy tension. A key driver of the reform is concern about deep‑pocket defendants – particularly local authorities, but also insured parties – carrying disproportionate liability. Yet if apartment owners are left without an effective alternative form of protection, pressure for some form of backstop may well re‑emerge, whether through political response or litigation strategies.
Possible responses – developer bonds, extending guarantee‑based solutions, or even a government backstop – all come with significant trade‑offs. Bonds are only effective if set at realistic levels. Guarantee type insurance products for latent defects discovered post-completion in high‑rise residential construction remain difficult to structure and make cost-effective. A direct government guarantee would sit uneasily with the philosophy underpinning the reforms.
For now, this issue remains unresolved.
What will the warranties actually cover?
Even for buildings that fall within scope, the detail of the proposed home warranties will matter. The Government has indicated a one‑year defects period and a ten‑year structural warranty, delivered through a mix of guarantees and insurance products at an estimated cost of approximately 0.5% of build cost.
At a high level, these warranties appear focused on defects arising from building work itself, rather than providing a comprehensive safety net across design, product selection, and construction systems. It remains unclear whether cover will extend to defective design or the supply of non‑conforming products.
This aligns with how warranty schemes typically operate overseas and with existing private warranty products in New Zealand. But important questions remain. What will count as a “structural” defect? Will the warranty respond to weathertightness failures, which often sit at the intersection of design, materials, and workmanship? Will it extend to fire safety and compliance issues, which are increasingly a driver of large-scale remediation overseas? And how will coverage operate where defects arise from a combination of trade execution, design input, and construction sequencing rather than a single identifiable cause?
New Zealand is not starting from a blank slate. Private warranty products – such as those offered by Master Builders and other providers – demonstrate both the value of warranty-based protection and the importance of clear boundaries. Scope, exclusions, claims processes, and coverage limits all materially affect whether a warranty provides real protection or only limited reassurance. Without careful definition, there is a risk that homeowners will assume they are covered, only to discover – when a serious defect emerges – that the warranty does not respond in precisely the circumstances where it is most needed.
Professional indemnity insurance: a safety net with holes
Compulsory PI insurance has an important role to play under proportionate liability, but it too is not a complete solution.
By its nature, PI insurance is narrow in focus. It sits with design consultants: architects, engineers and others providing professional advice or design services. It does not extend to builders or developers, and it is not designed to underwrite every failure that might occur on a residential project. It is a safety net for professional advice, not a blanket guarantee that everything will work as intended.
Most reputable consultants already carry PI insurance, particularly architects and engineers operating in the residential market. In that sense, the Government’s proposal is less about creating something new and more about ensuring consistency – closing the gaps where uninsured or underinsured designers may still be practising. The real question, however, is how broadly the net will be cast. Will mandatory PI extend beyond the traditional design professions to include specialist designers, draftspersons, or contract administrators whose input can materially shape construction outcomes? The answer to that question will determine whether meaningful gaps remain.
More fundamentally, the presence of PI insurance tells only part of the story. What matters is what the policy actually responds to.
In New Zealand, PI insurance has long carried significant exclusions for certain categories of risk, most notably weathertightness. In the wake of the leaky building crisis, many policies expressly exclude liability for moisture ingress and related failures. Homeowners should not assume that PI insurers will quietly fill that gap in a proportionate liability setting. The same caution applies to other high-impact defect categories, such as fire safety or regulatory non-compliance, where coverage may be limited, sub-limited, or excluded altogether.
It is possible that proportionate liability will, over time, make certain risks more insurable by reducing the exposure of insured consultants to the insolvency of others. But insurance markets respond to claims experience and risk appetite, not legislative intent.
Whether PI broadens its reach will ultimately be decided by insurers, not legislators.
There is another quieter but possibly significant issue for homeowners: contractual liability caps. Even where a consultant holds substantial PI insurance, consultancy agreements may cap liability well below the potential loss. There are some qualifications as to the effectiveness of liability caps. First, they are contractual and so not normally binding on third parties (such as subsequent purchasers). However, where the home-owner plaintiff has contracted directly with the consultant, liability caps will likely come into play. In that event, recourse may be available under consumer protection legislation such as the Fair Trading Act 1986 and Consumer Guarantees Act 1993 from which parties are limited in their ability to contract out. But the application of these protections will be fact-specific and will not necessarily be available in all cases. In a proportionate liability setting, contractual caps have the potential to compound the risk of shortfall where the homeowner is the principal and other responsible parties are insolvent or uninsured.
In sum, PI insurance is a valuable but limited tool. Without close attention to scope, exclusions, and contractual limits, it may improve recoverability at the margins while still leaving significant gaps where defects are serious and responsibility is shared.
Increased penalties for LBPs: lifting standards at the front end
Alongside insurance and warranty reform, the Government has also proposed stronger disciplinary consequences for licensed building practitioners. The objective is clear: lift build quality and reduce the need for downstream recourse to warranties, insurance, or litigation.
That focus is sensible, but enforcement can only go so far. The LBP regime addresses building work, not design or product choice, and does little to prevent defects arising from coordination failures earlier in the project lifecycle. If quality uplift is the aim, enforcement may need to be complemented by enhanced training, supervision, and potentially more targeted construction observation by specialist designers.
Conclusion: progress, but unfinished business
Taken together, the proposed reforms represent a genuine attempt to recalibrate risk in the construction sector. Mandatory home warranties, compulsory PI insurance for design professionals, and stronger disciplinary consequences for negligent practitioners are all steps in the right direction.
Yet even for low‑rise homes, there is no guarantee that losses arising from design or construction error will be fully covered. Warranties and PI insurance are shaped by scope, exclusions, and limits, and will not respond to every failure scenario. For apartment owners in medium to high‑rise buildings, the position is starker still: no builder warranty scheme is proposed, leaving those owners particularly exposed where developers or contractors become insolvent.
In practical terms, owners in multi-storey bodies corporate may need to accept that, if serious defects emerge, some portion of the remediation cost will ultimately fall on them. That reality raises broader questions. What does this mean for apartment values? How does it sit with policy settings that actively promote more intensive urban housing? And should greater attention be given to first-party insurance for latent defects, or to building realistic allowances for defect remediation into long-term maintenance planning?
If you have any questions about this, please get in touch with our construction team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
