His liability arose from what was built, not from what he advised
A Victorian court has drawn a precise line between two kinds of professional exposure, reminding us that the architecture of insurance must match the architecture of risk. A construction company director, facing strict statutory liability for non-compliant cladding, discovered that professional indemnity coverage — designed to answer for professional judgment — does not answer for liability that attaches simply by virtue of role and outcome. The ruling is less a story of one man's misfortune than a clarification of a distinction the law has always maintained, but that practice too often blurs: being a professional and incurring professional liability are not the same thing.
- A $3.17 million judgment against a director for non-compliant cladding exposed a critical mismatch between the coverage he held and the liability he faced.
- Strict liability under Victoria's Building Act required no proof of negligence or professional failing — the director was liable simply because of what was built under his watch.
- The insurer declined to indemnify, and the court agreed: professional indemnity policies respond to breaches of professional duty, not to statutory liability that bypasses fault entirely.
- A procedural blow compounded the substantive one — the claim was not served on the director personally until after both policy periods had expired, making timing independently fatal to his case.
- The ruling sends an urgent signal to directors, brokers, and insureds: D&O insurance exists precisely for this kind of statutory strict liability exposure, and PI policies were never designed to carry that weight.
A director of a Victorian construction company has paid a steep price for a mismatch between the insurance he held and the liability he faced. Mr. Naqebullah, a director at Shangri-La Constructions, recommended expanded polystyrene cladding for a building project — material that violated the Building Code of Australia's non-combustibility requirements and was never approved as an alternative. When the breach of statutory warranties surfaced, the company was found liable. But so was he, personally, under a strict liability provision of Victoria's Building Act 1993 that required no proof of negligence. The judgment against him reached $3,174,775.99 plus interest.
He turned to Shangri-La's professional indemnity policies issued by Arch Underwriting, covering two consecutive annual periods, and sought indemnity. The insurer declined, and the court upheld that decision on multiple grounds.
The first question — whether he was even an insured — was resolved in his favour. The policies clearly contemplated directors, and the proposal forms themselves addressed risks to directors and employees. But that technical inclusion proved hollow against what followed.
The timing of the claim proved independently fatal. The policies required claims to be made and notified within the period of insurance. Although proceedings against the company began during the 2017/18 period, the originating process was not personally served on Mr. Naqebullah until August 2019 — outside both policy windows. His argument that a later 2022 claim constituted a single continuous claim was rejected, not least because the statutory provision creating his strict liability did not even exist during the relevant periods.
But the court went further, addressing the deeper structural problem. Professional indemnity insurance responds to civil liability arising from professional services — the advice given, the design chosen, the judgment exercised. Mr. Naqebullah was a registered building practitioner, and he had provided professional input. Yet the court drew a sharp line: his liability arose from what was built, not from the professional reasoning behind choosing it. Strict liability, by definition, attaches without any inquiry into professional duty. It simply follows from role and outcome.
The ruling clarifies what PI policies are and are not. They protect against claims rooted in professional conduct. They do not protect against statutory liability that flows from being a director when something goes wrong. That is the domain of directors and officers insurance — a policy Mr. Naqebullah did not have. The court's message to the industry is pointed: match the coverage to the exposure, understand whether your policy is claims-made or claims-made-and-notified, and do not assume that holding a professional role means your professional indemnity policy will answer for every liability that role can generate.
A director of a construction company in Victoria has learned an expensive lesson about the limits of professional indemnity insurance. The Victorian Supreme Court has now clarified exactly where those limits lie—and the answer matters for every director and broker trying to figure out which policy actually covers what.
The case began with expanded polystyrene cladding. Mr. Naqebullah, a director at Shangri-La Constructions, recommended EPS cladding for a building project under his company's name. The material was not permitted by building codes and regulations. It was not approved as an alternative by the building surveyor. When the problem surfaced, the court found that Shangri-La had breached statutory warranties under Victoria's Domestic Building Contracts Act by using cladding that violated the Building Code of Australia's non-combustibility requirements.
But the liability didn't stop with the company. Under section 137F(3) of the Building Act 1993, Mr. Naqebullah himself faced strict liability—meaning the court didn't need to prove he acted negligently or breached any professional duty. He simply bore liability because of what was built. The judgment against him came to $3,174,775.99 plus interest. He then turned to Shangri-La's professional indemnity policies issued by Arch Underwriting, covering the periods from August 2017 to August 2018 and August 2018 to August 2019, seeking indemnity. The insurer declined.
The court had to answer three questions. First, was Mr. Naqebullah actually an insured under the policies, given his name appeared nowhere on the proposal form or certificate of insurance? The court said yes—the parties clearly intended directors to be covered, and the proposal forms themselves asked about risks to directors and employees. But being technically covered turned out to matter less than it seemed.
Second, when was the claim made? This proved fatal to Mr. Naqebullah's case. The policies required that a claim be made and notified to underwriters within the period of insurance. Although claims were brought against Shangri-La during the 2017/18 policy period, the originating process was not served against Mr. Naqebullah personally until August 6, 2019—well outside both policy periods. He argued the 2022 claim against him was a single claim encompassing the earlier proceedings, but the court rejected this. The statutory strict liability provision he relied on didn't even exist during the relevant policy periods.
Yet even if the timing had worked, there was a third and more fundamental problem. Professional indemnity insurance covers civil liability incurred in the conduct of professional business. Mr. Naqebullah was a registered building practitioner with a diploma in building surveying, so he had provided professional services. But the court drew a sharp distinction: his liability arose not from what he designed or recommended, but from what was built. The statutory warranties concerned the material itself, not the professional judgment behind choosing it. Strict liability, by definition, requires no consideration of professional duty at all. It simply attaches to the director because of his role and the outcome.
This distinction cuts to the heart of what professional indemnity actually covers. The policies protect against claims arising from the professional work itself—the advice given, the design chosen, the service rendered. They do not protect against liability that flows simply from being a director or officer when strict statutory liability applies. That is what directors and officers insurance is for. Mr. Naqebullah needed the latter policy, not the former. The court's message to insureds and brokers is clear: understand what you are buying, know whether your policy is claims-made or claims-made-and-notified, and match the coverage to the actual exposure. A director facing strict statutory liability needs protection designed for that exposure, not a policy built for professional negligence claims.
Notable Quotes
This liability 'arose from what was built, not from what was designed or recommended'— Victorian Supreme Court judgment
The Hearth Conversation Another angle on the story
So the director had professional indemnity insurance and it didn't cover him. Why not? He was a director, wasn't he?
He was, but that's exactly the problem. Being a director is a role. Professional indemnity covers the work you do in a professional capacity—the advice, the design, the service. His liability came from what was built, not from how he advised on it.
But he was a registered building practitioner. Didn't that make it professional work?
It did make him a professional. But the court separated the person from the work. His professional credentials didn't matter because the liability was strict—it attached to him automatically because of the building code breach, regardless of whether his advice was sound.
So what should he have had instead?
Directors and officers insurance. That's designed for statutory liability that attaches to you because of your position, not because of what you did wrong professionally.
And the timing issue—the claim wasn't made within the policy period?
Right. The policies required notification during the period of insurance. Claims came against the company during 2017-18, but he personally wasn't sued until 2019, after both policies had expired.
So even if the coverage had been right, the timing killed it anyway?
Exactly. Two separate problems, either one fatal. That's why brokers need to think carefully about what policies actually respond to what exposures.