Faulty Workmanship Exclusions: When Public Liability Doesn’t Cover Your Mistakes
If you run a trades business—whether you’re a builder, plumber, electrician, or landscape architect—your public liability insurance is the safety net you rely on when something goes wrong. But here’s the legal reality that many business owners discover too late: that policy is not designed to cover the cost of fixing your own mistakes. The faulty workmanship exclusion is one of the most misunderstood and contested provisions in Australian public liability insurance, and it can leave you personally exposed to significant financial loss if you don’t understand its limits.
At its core, public liability insurance covers you for injury to third parties or damage to their property caused by your business activities. It does not, however, cover the cost of rectifying defective work you performed, nor the value of the work itself. This distinction is rooted in the fundamental principle that insurance is for fortuitous, accidental events—not for contractual promises to deliver a certain standard of work. As the Insurance Contracts Act 1984 (Cth) and state Civil Liability Acts make clear, the purpose of liability insurance is to protect against unforeseen liability, not to guarantee your workmanship.
In this article, I will walk you through exactly what faulty workmanship exclusions mean, how they apply in practice, and what you can do to protect your business. By the end, you’ll understand why your policy won’t pay for a leaking roof you installed, but it might cover the water damage to your client’s furniture when that roof fails.
What Is the Faulty Workmanship Exclusion?
The faulty workmanship exclusion is a standard clause in most public liability policies. It typically states that the insurer will not cover claims arising from or attributable to defective or faulty workmanship, design, or materials used in your business operations. The precise wording varies between insurers, but the effect is the same: if you do a poor job, and the only loss is the cost of fixing that job, your policy will not respond.
To understand why, consider the purpose of public liability insurance. It is not a performance bond or a warranty. It does not guarantee that your work meets industry standards. Instead, it protects you against accidental and unintended consequences of your work that cause harm to others. For example:
- If you install a light fitting incorrectly and it falls, injuring a client, the injury claim is covered (subject to other policy terms).
- If you install a light fitting incorrectly and it simply doesn’t work, the cost of replacing it is not covered—that’s faulty workmanship.
- If you install a light fitting incorrectly, it causes a short circuit, and that fire damages your client’s home, the property damage claim may be covered, but the cost of re-doing the electrical work is not.
This distinction is critical. The exclusion targets the cost of rectifying your own defective work, not the consequential damage that flows from it. However, as we’ll see, the line between “faulty workmanship” and “consequential damage” is often blurred in practice.
How the Courts and Tribunals Interpret This Exclusion
Australian courts and the Australian Financial Complaints Authority (AFCA) have developed a consistent approach to faulty workmanship exclusions, but the outcomes depend heavily on the specific facts. The key legal principle is that the exclusion is read strictly against the insurer, meaning any ambiguity is resolved in your favour. However, insurers have become increasingly sophisticated in drafting these clauses to cover a wide range of scenarios.
Case type: A Queensland tribunal matter
In a recent Queensland tribunal case, a builder was sued by a homeowner for defective waterproofing in a bathroom. The builder’s public liability insurer denied the claim, arguing that the faulty workmanship exclusion applied. The tribunal agreed, finding that the claim was solely for the cost of repairing the defective waterproofing—not for any damage to other property. The policy did not cover the builder’s own poor work.
Case type: An AFCA determination
In contrast, an AFCA determination from 2024 involved a plumber who installed a hot water system incorrectly, causing a burst pipe that flooded a client’s kitchen. The insurer initially denied the claim, citing the faulty workmanship exclusion. AFCA found that while the exclusion applied to the cost of re-installing the hot water system, it did not apply to the water damage to the kitchen floor and cabinetry. The insurer was required to pay for the consequential property damage.
The takeaway is clear: the exclusion covers the cost of your own defective work, but not the damage it causes to other property. However, this distinction is not always straightforward. If your defective work causes damage to the very thing you were working on (e.g., a wall you painted incorrectly that then cracks), the line can be blurry. Insurers often argue that any damage to the subject matter of your work is excluded, even if it goes beyond mere rectification.
State-by-State Variations: What You Need to Know
Australia’s insurance landscape is governed primarily by the Insurance Contracts Act 1984 (Cth), which applies to all general insurance policies. However, state and territory laws can influence how these exclusions are interpreted, particularly through Civil Liability Acts and Work Health and Safety (WHS) legislation.
New South Wales and Victoria
In NSW and Victoria, the Civil Liability Acts place a strong emphasis on proportionate liability, which can affect how claims involving multiple parties are handled. If you are sued alongside a subcontractor or supplier, the court may apportion fault based on each party’s contribution to the loss. This doesn’t change the faulty workmanship exclusion itself, but it can affect whether your insurer is required to defend you or pay out on a claim.
Queensland and Western Australia
Queensland and WA have specific provisions in their Civil Liability Acts that can limit liability for economic loss arising from defective work. For example, in Queensland, a builder may be able to rely on the “concurrent wrongdoer” provisions to reduce their liability if other parties contributed to the loss. However, this does not alter the contractual terms of your policy—the exclusion still applies.
South Australia and Tasmania
These states have less case law on faulty workmanship exclusions, but they follow the general common law principles. The key difference is that SA has a longer limitation period for building actions (10 years from the date of completion), which means you could be facing a claim long after the work is done. Your insurer may still deny coverage under the faulty workmanship exclusion, even if the claim is brought years later.
Practical tip: Regardless of where you operate, always review your policy wording carefully. Some insurers offer “rectification” or “remediation” extensions that provide limited cover for the cost of fixing your own defective work, but these are rare and often capped at a low amount (e.g., $50,000). If you are a tradesperson, consider whether your policy includes such an extension.
The 2026 Claims Landscape: Data and Trends
As of early 2026, the Australian public liability insurance market is seeing a hardening of terms around faulty workmanship exclusions. According to industry data, claims involving defective workmanship now account for approximately 18-22% of all public liability disputes lodged with AFCA, up from 12% in 2020. This increase is driven by several factors:
- Rising construction costs: With materials and labour more expensive, the cost of rectifying defective work has soared, leading to larger claims and more disputes.
- Stricter underwriting: Insurers are increasingly excluding cover for “design and construct” businesses, or imposing higher premiums and sub-limits for workmanship-related claims.
- Regulatory pressure: State building regulators are cracking down on defective work, with more enforcement actions and mandatory reporting requirements. This has increased the volume of claims against tradespeople.
Premium ranges for 2026
For most small to medium-sized trades businesses, public liability insurance premiums now range from $400 to $2,000 per year, depending on your trade, turnover, and claims history. However, if you work in high-risk areas like roofing, structural engineering, or electrical work, premiums can easily exceed $3,000 to $5,000 per year. Insurers like BizCover and other online platforms have made it easier to compare policies, but the key is to read the product disclosure statement (PDS) carefully—especially the exclusions section.
Claim statistics
A 2025 report from the Insurance Council of Australia noted that the average public liability claim involving faulty workmanship is now around $35,000 to $80,000, with legal costs adding another $10,000 to $25,000. For small businesses, this can be catastrophic, particularly if the claim is denied and you are left to defend yourself.
How to Protect Your Business: Practical Strategies
You cannot entirely eliminate the risk of a faulty workmanship claim, but you can take steps to minimise your exposure and ensure your insurance responds when you need it.
1. Understand your policy’s scope
Read your PDS and ask your broker or insurer to explain exactly what the faulty workmanship exclusion covers. In particular, ask whether the exclusion applies only to the cost of rectifying your work, or whether it also extends to consequential damage to the subject matter of your work. Some policies define “workmanship” broadly to include design, materials, and installation—so know where you stand.
2. Document everything
In the event of a dispute, your best defence is a clear paper trail. Keep detailed records of contracts, specifications, site photos, and correspondence with clients. If a client raises a concern about your work, respond promptly and in writing. This can help you argue that any defect was not due to your workmanship, or that the client’s expectations were unreasonable.
3. Consider professional indemnity insurance
If your business involves providing advice, design, or consultancy services, public liability insurance alone will not cover you for professional negligence. Professional indemnity insurance is designed to cover claims arising from errors or omissions in your professional services, including design defects. Many tradespeople overlook this, but it can be a vital layer of protection.
4. Use contracts wisely
Your contract with a client can limit your liability for faulty workmanship. For example, you can include a clause that requires the client to give you the opportunity to rectify defects before pursuing a claim. You can also cap your liability at the contract price, though this may not be enforceable in all states. Seek legal advice on your contract terms.
5. Review your risk management
Implement quality control processes, use licensed subcontractors, and ensure your team is properly trained. Insurers will look more favourably on a business that can demonstrate robust risk management practices. Some insurers offer premium discounts for businesses that complete accredited safety or quality assurance programs.
The Role of Comparison Platforms: A Word of Caution
Online comparison platforms like BizCover have made it easier to shop for public liability insurance, but they are not a substitute for professional advice. When you use a comparison site, you are typically shown a range of standard policies, but you may not see the subtle differences in exclusions between products. A cheaper policy might have a broader faulty workmanship exclusion or a lower sub-limit for consequential damage.
If you use a comparison platform, always request the full PDS for each policy you are considering. Read the exclusions section carefully, and if anything is unclear, ask the insurer or a broker for clarification. The cost of a mistake could far outweigh any premium savings.
Frequently Asked Questions
Does my public liability insurance cover me if I accidentally damage a client’s property while working?
Yes, typically. If you accidentally damage a client’s property that is not the subject of your work—for example, you drop a tool on their marble floor—your public liability insurance should cover the cost of repair or replacement. However, if the damage is caused by your defective workmanship (e.g., you install a tap incorrectly and it leaks), the faulty workmanship exclusion may apply to the cost of fixing the tap itself.
What is the difference between faulty workmanship and consequential damage?
Faulty workmanship refers to the defect in your work itself—the cost of re-doing or repairing that work. Consequential damage refers to the harm caused by that defect to other property or to people. For example, if you install a window incorrectly and it falls, the cost of re-installing the window is faulty workmanship, but the cost of repairing the broken glass or injury to a passerby is consequential damage and may be covered.
Can I buy a policy that covers faulty workmanship?
Some insurers offer “rectification” or “remediation” extensions as an optional add-on to public liability insurance. These are typically limited in scope and amount (e.g., $50,000 or $100,000 per claim). They are not common, and they are often more expensive. For most tradespeople, it is more practical to rely on professional indemnity insurance for design-related defects and to manage workmanship risk through contracts and quality control.
Does the faulty workmanship exclusion apply to subcontractors?
Yes, it can. If you hire a subcontractor who performs defective work, your public liability policy may still respond to claims for consequential damage, but the exclusion will apply to the cost of rectifying the subcontractor’s work. You should ensure that your subcontractors have their own insurance and that you have a written agreement requiring them to indemnify you for their defects.
How does the Insurance Contracts Act 1984 affect faulty workmanship exclusions?
The Insurance Contracts Act 1984 (Cth) requires insurers to act with the utmost good faith and to provide clear disclosure of policy terms. If an exclusion is ambiguous, it will be interpreted in your favour. However, the Act does not override the plain meaning of a clearly drafted exclusion. If your policy states that faulty workmanship is not covered, that exclusion is enforceable.
What should I do if my insurer denies a claim based on faulty workmanship?
First, request a written explanation from your insurer, including the specific policy clause they rely on. If you disagree, you can lodge a complaint with the insurer’s internal dispute resolution process. If that fails, you can escalate the matter to AFCA, which provides free and independent dispute resolution for most insurance complaints. In some cases, you may need to seek legal advice, particularly if the claim is large or complex.
Are there different rules for construction businesses versus service trades?
Yes, to some extent. Construction businesses (e.g., builders, structural engineers) often face broader exclusions because their work involves design, materials, and installation. Service trades (e.g., plumbers, electricians) tend to have more straightforward exclusions, but the principles are the same. The key is to understand the specific wording of your policy and how it applies to your trade.
Can I avoid the faulty workmanship exclusion by using a different policy type?
No. Faulty workmanship exclusions are standard across almost all public liability policies. However, you may be able to purchase a separate “defects” or “rectification” insurance policy, though these are niche products and not widely available. For most businesses, the best approach is to manage your risk through contracts, quality control, and understanding your policy’s limits.