Imagine purchasing what appears to be a well-built home. The property looks immaculate. The tiles are flawless, the walls freshly painted, and the roofline perfectly straight.
Then the rain comes.
Water begins to seep through the walls. Mould appears. Staining spreads across ceilings. A building report soon reveals the problem: defects that have been present since construction – hidden for years.
You turn to Domestic Building Insurance (DBI), expecting it to provide protection.
But what if the insurance does not respond – even though the defects existed from the beginning?
This was the central issue considered by the Victorian Court of Appeal in Fall-Armytage v Victorian Building Authority [2026] VSCA 32, a decision that clarifies a critical – and often misunderstood – aspect of Domestic Building Insurance in Victoria.
The case highlights a fundamental point that many property owners and purchasers overlook:
Insurance coverage may depend not on when a defect occurred, but on when the loss actually appears.
The Background: A Defect Hidden in Plain Sight
The property at the centre of the dispute was constructed between 2013 and 2014 under a domestic building contract. As required by Victorian law, the builder obtained Domestic Building Insurance for the project.
The works were completed in November 2014.
Several years later, the property was sold twice before ultimately being purchased by a new owner in May 2018.
Not long after the purchase, problems began to emerge during heavy rainfall:
• water leaks
• mould and staining
• signs of water ingress
A building inspection later revealed multiple construction defects, including waterproofing failures and other finishing defects.
By that stage, the builder had entered voluntary administration. With no practical ability to pursue the builder directly, the owner sought to rely on the Domestic Building Insurance policy.
The insurer refused the claim, leading to litigation that ultimately reached the Court of Appeal.
The Legal Question: When Does Insurance Coverage Apply?
Domestic Building Insurance policies distinguish between two categories of defects:
• Non-structural defects: typically covered for two years after completion
• Structural defects: covered for six years after completion
In this case, most of the defects were non-structural.
The owner argued that the insurance should respond because the defects themselves arose during construction. Even though the damage only became visible years later, the underlying defects existed during the policy period.
The insurer argued something different.
It submitted that the policy only responds if the loss or damage occurs within the relevant coverage period, regardless of when the defect first arose.
That distinction ultimately proved decisive.
The Court of Appeal’s Decision
The Court of Appeal agreed with the insurer.
The Court held that the relevant question under the policy is when the loss or damage occurs, not simply when the defect arose during construction.
For non-structural defects, the loss must occur within two years of completion.
Because the homeowner purchased the property in 2018 – more than two years after completion – the loss they experienced fell outside the policy coverage.
The Court also addressed the statutory warranties under the Domestic Building Contracts Act 1995 (Vic).
While those warranties “run with the building”, the Court clarified that they do not transfer the losses of earlier owners to subsequent purchasers. Each owner must prove their own loss resulting from the breach.Importantly, this means that although statutory warranties pass to later owners, the losses themselves do not. A subsequent purchaser cannot claim compensation for loss suffered by a previous owner simply because the defect existed earlier. Instead, the later owner must demonstrate the loss or damage they personally suffered as a result of the breach.
What Builders Need to Know
This decision provides several important lessons for builders operating in Victoria.
1. Insurance timeframes matter more than many realise
Domestic Building Insurance is often viewed as a long-term safety net for defects. However, this case confirms that coverage can depend heavily on the timing of the loss, particularly for non-structural defects.
2. Non-structural defects carry a short liability window
Non-structural defects are only covered for two years after completion under DBI policies. Many common issues (including waterproofing failures) may not become apparent within that period.
3. Documentation and quality control remain critical
Because defects may surface long after completion, builders should maintain strong systems for:
• quality assurance and supervision
• subcontractor management
• record keeping and documentation
Those records can become critical years later if disputes arise.
4. Disputes may shift toward warranty claims rather than insurance
Where DBI coverage is unavailable, homeowners may instead pursue claims for breach of statutory warranties under the Domestic Building Contracts Act 1995 (Vic). Builders should ensure they understand the continuing exposure that these warranties create.
What Property Purchasers Should Do Before Buying
For purchasers, the decision highlights the importance of careful due diligence – particularly when buying a property that is several years old.
Before purchasing, buyers should consider:
✔ Confirming the completion date of the building works: this determines whether the DBI coverage periods have expired
✔ Obtaining the Domestic Building Insurance certificate: review the policy details and coverage periods
✔ Commissioning a thorough building inspection: latent defects may exist even if the property appears sound
✔ Understanding the difference between structural and non-structural defects: the classification can significantly affect insurance coverage
✔ Obtaining legal advice where defects are suspected: early advice may help identify potential claims or risks
✔ Considering the age of the property carefully: homes purchased more than two years after completion may have no DBI coverage for non-structural defects at all
A Broader Question for the Industry
The decision in Fall-Armytage raises a broader question about the role of Domestic Building Insurance in Victoria.
Many building defects, particularly waterproofing and building envelope issues, may take years to become visible. Yet insurance coverage for non-structural defects ends after just two years.
For many homeowners, this creates a gap between when problems arise and when insurance protection ends.
Whether that gap reflects the realities of residential construction is a question likely to continue shaping industry and regulatory debate.
The Key Takeaway
The Court of Appeal’s decision in Fall-Armytage confirms a critical point:
Domestic Building Insurance responds to the timing of the loss, not simply the timing of the defect.
For builders, property purchasers, and industry professionals alike, that distinction can determine whether insurance protection exists at all.