Home owners say insurance firms failing to pay plumbing works claims

Cathy O'Connell has been unable to live in her home for four years.

The 68-year-old started renovations at two properties in Melbourne's inner south, which led to multiple defects by plumbers.

"I literally have pipes in the downstairs bedroom doorway, there are no connections to toilets, there are no connections to basins," she said.

In Victoria, plumbers are covered by a unique policy called the Licensed Plumbers General Insurance Order 2002, introduced by ministerial order, to protect home owners if plumbing work fails.

But the private insurance companies involved in Ms O'Connell's case — Chubb, Berkley, and WFI Insurance — deny liability and refuse to pay her claims, despite multiple reports outlining defective and non-compliant plumbing work.

Many experts in the industry have told the ABC Ms O'Connell is not alone, with some insurance companies refusing claims or only offering a maximum payout of $50,000 — a figure that does not align with the ministerial order.

Former chartered loss adjuster David Pockett, who worked in the industry for almost two decades before retiring in 2022, said he had worked with hundreds of home owners who were given "hell" by insurance companies.

"You've got a piece of government legislation here that says that consumers should be protected against defective plumbing work," he said.

"At the moment, it doesn't seem to be working very well at all.

A Victorian government spokesperson said: "We're taking action to protect home owners from insurance loopholes by creating the powerful new Building & Plumbing Commission — which the Liberals tried to block — to regulate the domestic building and plumbing industries across Victoria.

"We'll continue working with stakeholders to strengthen consumer protections and deliver the safe, high-quality homes that Victorians deserve."

'Confusing' order at risk of exploitation

The ministerial order was introduced to the Victorian parliament in 1997 as a separate, compulsory insurance for all plumbers after the industry was deregulated.

Victoria is the only jurisdiction in Australia to offer this type of insurance.

But Mr Pockett said the order had not been updated since 2002 and it was exploited to suit the narrative of insurance companies denying claims or issuing policies that did not offer adequate cover.

The ministerial order directs plumbers to have insurance that indemnifies them against public liability and completed work liability for at least $5,000,000 for any one occurrence, and at least $50,000 for all other liability.

But multiple insurance policies seen by the ABC do not include cover for completed work liability and they cap defective plumbing cover at $50,000.

"There was no clarity … public liability and completed works were being mixed together in the order, but there were different definitions for both," Mr Pockett said.

He also said the order did not take into account inflation or GST.

"The benefits that are potentially available to people today are exactly the same as they were in 1997 when the scheme first came out," he said.

"The other issue that's eaten away at the value of these things is GST, because it hadn't even been invented in Australia before the ministerial order came into effect in 1997."

At risk of foreclosure

Ms O'Connell lodged claims with Chubb, Berkley, and WFI Insurance in July 2023 after multiple reports found plumbing work at both her sites was defective and non-compliant.

Industry regulator the Building and Plumbing Commission (BPC) also took disciplinary action against the three plumbers who worked at Ms O'Connell's properties.

One joint report prepared by four industry professionals found the sewer and stormwater drains at both properties were non-compliant and would "require a full replacement".

The experts also agreed the "slabs are required to be demolished to enable the economical rectification of the below-ground drainage".

But all three private insurers rejected the claims.

"It has been the biggest roller-coaster ride …," Ms O'Connell said.

"Insurance is in place for a reason. The defects have been identified. There's been more than enough plumbing reports."

According to the Chubb, Berkley, and WFI insurance policies, each had a $50,000 limit on defective domestic plumbing work and none included cover for completed work liability.

Chubb eventually offered Ms O'Connell three separate amounts to fix the damage, figures protected under legal privilege.

"I accepted the [final] Chubb offer in writing [the day after mediation] and [Chubb] waited seven days and said, 'Now it's withdrawn.'"

She said the outcome was devastating.

"I can't take much more of this … I'm heavily in debt, I have water rates to pay … I've got four years of land tax to pay," she said.

Berkley Insurance Australia told the ABC: "We are not in a position to provide any comment regarding this claim as the matter is currently the subject of legal proceedings."

WFI also declined to comment because of legal procedures.

Chubb did not respond to questions from the ABC.

Ms O'Connell has contacted industry regulators, including the BPC, the Australian Securities and Investment Commission, the Commonwealth Ombudsman, and the Australian Financial Complaints Authority, but said she continued to be passed between each.

She worries she will be forced into foreclosure.

"It's been emotionally, physically and financially draining," she said.

A spokesperson for ASIC said: "ASIC does not and cannot regulate the price or terms of cover that insurers are prepared to offer their clients."

Living in a 'construction site'

Nik has been living with defective plumbing work for almost two years after engaging tradespeople to build his home at the end of 2022.

The Melbourne man, who asked to be identified by his first name only, made three reports with the then-Victorian Building Authority (VBA) in July last year, detailing various defects.

"They didn't put in an s-trap underneath [the bath], so that means sewer gas can just come in through the bathtub because it hasn't been plumbed properly," he said.

After two attempts by the regulator to engage the plumber to fix the defects, the issues were made worse, leaving his home like "a construction site".

He said the regulator then advised him to contact his plumber's insurer to initiate a claim.

"The [regulator] told me I needed the plumber's insurance details, which they provided to me … and a list of some of the defect items that the [regulator] had noted and they told me, 'Go to the insurance. That's all you need,'" he said.

Nik contacted the insurance company in March and in June it told him it denied liability, noting it was still waiting for their assessor to provide a final report. Four months later, no update has been made.

Nik is now spending about $10,000 on another independent report confirming the defects and has hired a lawyer to communicate with the insurance company on his behalf.

He said he was disappointed by the lack of support he had received from the industry regulator.

"The [BPC] made the insurance path seem like the easiest pathway … but then they also tell you, 'Oh, we have nothing to do with insurance. We won't support you with anything. That's a matter between you and the insurer. If you have issues, you start litigation,'" he said.

"Once they hand you the plumber's insurance details, they wipe their hands of it."

The Building and Plumbing Commission (BPC) did not respond to questions from the ABC.

Attempts to amend ministerial order ignored

Industry experts believe one of the main problems with the ministerial order is a lack of awareness that it exists, allowing insurance companies to get away with their $50,000 policy limit.

Dean Charalambous, a lawyer who specialises in plumbing insurance and building defect claims, said home owners did not realise that "if there is something that's not consistent between the order and the [insurance] policy, that the order should prevail".

"Sometimes [insurance companies] only offer up to $50,000 for compensation and they just do a blanket rule," he said.

"There's a lot more to this than that. There's legal costs that you can claim … the completed works errors in design, there's consequential financial losses."

But he told the ABC there had never been a plumbing insurance matter go to a final judgement in court, making it difficult to establish a precedent.

"We don't really have any case authority to tell us who can claim … what is the maximum, or what are the ranges that someone can claim on the plumbing insurance," he said.

Mr Pockett agreed and said he has written to several ministers over the years and made a submission to the Hayne Royal Commission, providing examples of insurance companies refusing claims or referring to a $50,000 indemnity limit.

"Nothing was done about it," he said.

"I suspect the royal commission probably viewed this as some sort of boutique, Victoria-only insurance nobody really worried about."

In November last year, an independent review into the VBA exposed a plethora of failures to protect home owners, including the handling of complaints, long wait times and palming matters off to other agencies.

One home owner mentioned in the report lodged 17 complaints with the VBA, which eventually identified defects, but decided not to take disciplinary action against the plumber. Instead, the regulator told the home owner to lodge a Freedom of Information (FOI) request to access the plumber's insurance details.

But after 12 months of dealing with an insurance provider, the home owner was told it was the wrong insurer, leaving her with no choice but to lodge another FOI application.

The report was one of the reasons the Victorian government overhauled the VBA and replaced it with the BPC — "a new, more powerful watchdog with greater powers to tackle sub-standard building work".

Report author Bronwyn Weir, whose legal practice specialises in advising government regulators, included recommendations specific to plumbing.

One recommendation encourages the government "to ensure that plumbing insurance products comply with the ministerial order … and that consumers are not being poorly treated by insurers when they make a claim".

But a year later, she says it has not been addressed.

Ms Weir's report highlighted seven cases, including Ms O'Connell's, and said they were just the tip of the iceberg.

"There was lots of evidence of this issue," she said.

"The insurance industry seemed to be, on the one hand, saying that their policies complied with the ministerial order but in practice then seeking to limit their payouts or even limit their acceptance of claims in a way that was inappropriate."

In August, Victorian MP Anthony Cianflone told parliament of a local constituent with defective plumbing in his home that would cost $270,000 to fix.

In a statement to the ABC, he said: "We know the average cost of building a new home and undertaking plumbing works have significantly increased since 2002.

"The order also deserves to be reviewed and modernised in line with 2025 building costs and standards."