New Zealand's construction and professional services sectors are watching closely as law reform bodies consider changes to the proportionate liability regime. While the anticipated legislative changes are currently expected to be implemented by 2028, the direction of reform is now sufficiently clear that businesses — and their insurers — are already adjusting how they assess liability risk.
What Is Proportionate Liability?
Proportionate liability is the principle that, in multi-party construction or professional services claims, each defendant should only be required to pay the share of loss that corresponds to their own degree of fault. Under a proportionate system, if a builder is 40% responsible for defective work and an engineer is 60% responsible, each pays their respective share — and neither is required to cover the other's portion if the other cannot pay.
This contrasts with joint and several liability, under which any one defendant can be required to pay the entire judgment, regardless of their individual fault share — and must then pursue the other defendants for contribution.
How NZ Currently Works
New Zealand has a hybrid system. Under the Construction Contracts Act and the general law of tort, joint and several liability still applies to many construction claims — particularly for building defects affecting third parties such as subsequent home purchasers. This means a principal contractor can be held liable for the full cost of a defect even where a subcontractor's work was the direct cause.
This creates a well-documented distortion: building companies price their services to reflect the risk of full liability, and many smaller subcontractors carry minimal insurance knowing that the principal will likely be left to fund any shortfall. The result is a market where insurance levels at the subcontractor tier are often inadequate.
The Proposed Reform Direction
The Law Commission and MBIE have both signalled interest in a more clearly proportionate regime for construction defect claims — aligned with the approach already in place in Australia under the proportionate liability provisions of various State-based building legislation. The likely reform elements include:
- Codified proportionate liability for concurrent wrongdoers in construction and property claims
- Clearer rules for the allocation of fault shares where one defendant is insolvent or uninsured
- Potential "innocent plaintiff" protections to ensure claimants with no fault are not left without remedy
- Greater transparency obligations for builders and subcontractors regarding their individual insurance positions
Who Will This Affect Most?
The reform will reshape liability exposure across the entire construction supply chain:
- Principal contractors and developers — Currently exposed to full joint and several liability, they would benefit from reform by having their exposure capped at their proportionate fault share. However, they lose the ability to pass the full cost of a defect to the party most at fault.
- Subcontractors and specialist trades — Currently sheltered by the practical reality that principals absorb the majority of claims, subcontractors will face direct proportionate claims against their own insurance. This will increase premium assessments for many trades.
- Architects and engineers — Already subject to professional indemnity insurance obligations in many cases, they will face more precisely allocated liability claims where their fault share can be clearly established.
- Home buyers and property owners — The reform must ensure that claimants who have suffered genuine loss from building defects are not left without practical remedy because one responsible party is insolvent or uninsured.
What This Means for Public Liability Cover
For most subcontractors and specialist trades, the coming reform is an argument for increasing cover limits sooner rather than later. Under a proportionate system:
- Claims will be routed directly to the party at fault rather than exclusively to the principal
- Subcontractors will need cover that genuinely reflects their own work value and risk, not the reduced-probability scenario under joint and several
- Insurers will review whether cover limits are adequate in light of the new direct exposure
A plumbing subcontractor whose faulty work causes $400,000 of consequential damage to a residential development currently expects that claim to land primarily on the builder. Under a proportionate system, it may come directly to the plumber in proportion to their assessed fault. $1M or $2M cover may not be sufficient.
Preparing for the Reform
While 2028 is the expected implementation timeframe, the practical lead time for insurance review is now. Steps to consider:
- Review your current cover limit in light of the realistic direct exposure your work creates
- Consider whether your contracts clearly allocate liability between you and your subcontractors or principals
- Check whether your commercial contracts require specific insurance levels — many are already requiring $5M as a minimum for construction work
- Monitor the Law Commission's published papers and MBIE consultation documents as the reform progresses
Conclusion
Proportionate liability reform is coming to NZ construction — the question is timing, not direction. For the trade and construction sectors, the practical implication is straightforward: ensure your public liability cover reflects the direct exposure you carry, rather than the lower practical exposure created by the current joint and several system. Review your cover now.