Every item on a claim is classified either as a defect or as incomplete work. Claims for incomplete works are capped at 20 per cent of the original contract value. Claims for defective work are limited only by the total policy cap. A Victorian Ombudsman investigation found there was no definition of incomplete works anywhere in the scheme, and that the insurer sometimes reclassified items that building inspectors had called defects.
01The two categories, and two very different ceilings
The single classification that moves a claim more than any other.
Domestic Building Insurance in Victoria is a last resort scheme. It responds when a builder has died, disappeared or become insolvent, and it is compulsory on domestic building projects costing more than $16,000. The builder buys the policy. The homeowner is the one who claims on it. As the Victorian Ombudsman put it, many homeowners "do not fully understand the policy and know little about DBI until they have to use it".
When a claim is assessed, every item on it is sorted into one of two boxes. Either it is work that was done badly, which is a defect. Or it is work that was never done at all, which is incomplete work. It sounds like a distinction without much consequence. It is the opposite.
"This is notable because claims for incomplete works are capped at 20 per cent of the original contract value. Claims for defective work are limited only by the $300,000 total policy cap."
Victorian Ombudsman, "We just want to finish our home", section "Defects or incomplete works"
On a $600,000 build, twenty per cent is $120,000. That is the most the incomplete works side of a claim can pay, no matter how much unfinished work there is. Move the same item into the defect column and the only ceiling is the policy cap. One word, applied by an assessor to a line on a schedule, and the arithmetic changes completely.
The Ombudsman recorded what homeowners made of that. "When VMIA reclassified as incomplete works items the homeowners considered defects, some homeowners felt VMIA was unfairly trying to reduce the payout. Some submissions we received speculated that this approach was taken to minimise costs."
02Why the line was so hard to draw
One of the two categories had a legal definition. The other had none.
This is the part that is genuinely difficult to believe until you read it, so here it is in the Ombudsman's own words.
"Resolving a disagreement about a classification was difficult because there was no definition for 'incomplete works' in legislation, the DBI ministerial order or in VMIA's policies. Defects are defined in the Domestic Building Contracts Act 1995 and this definition is reflected in the ministerial order and VMIA's DBI policy."
So the category that carries the lower ceiling, the one that caps a payout at twenty per cent, was the category with no definition. Not in the Act, not in the ministerial order, not in the insurer's own policy documents. A homeowner disagreeing with a classification had nothing authoritative to point at.
The working test the insurer applied was its own. The Ombudsman recorded that VMIA "considered any item that would be fixed by a builder in the ordinary course of completing the build to be an 'incomplete work'". Asked how it decided what would be fixed in the ordinary course of building, VMIA "said it relied on prior experience and advice from builders".
The Ombudsman's assessment of that was direct. "Given the ministerial order, policy and claims handling guidelines did not define incomplete works, it is unclear how these documents assisted VMIA in making consistent determinations."
03Who actually decides, and what happens to your inspector's view
An inspection report recommends. The insurer determines.
A homeowner making a claim on an incomplete home is expected to itemise. The Ombudsman set out the process plainly: the homeowner "should list each individual item they consider is a defect in addition to identifying that the building is incomplete. Inspection reports then recommend which items should be accepted and whether the items are defects or incomplete works."
Then comes the sentence that decides where the power sits. "These reports should also provide reasons for their recommendations but did not always."
And on the decision itself: "While VMIA considered inspection reports when making liability decisions, it was ultimately VMIA that determined which items were defects and which were incomplete works."
The Ombudsman reviewed claim files and found that "there was often no internal VMIA record of reasoning for decisions", that "there was generally no reasoning provided to homeowners", and that VMIA "occasionally reclassified items as incomplete works that had been classified as defects by building inspectors".
Homeowners who had commissioned their own inspections sometimes found the two documents did not agree. "The inspection reports relied on by VMIA and subsequent decisions could, at times, appear to contradict the findings of inspections that the homeowners had commissioned. This caused extra stress and concern for some homeowners."
There is a practical lesson buried in that, and it is not the obvious one. The problem was rarely that a homeowner had no report. It was that a recommendation without stated reasons is easy to move, and a reclassification without stated reasons is impossible to argue with. Reasons are the part that travels.
04What the Ombudsman found, and what the insurer says about it
Both positions are on the public record. We report both and join neither.
The investigation was not something the Ombudsman chose to do. It was required by the Legislative Council, and it examined how VMIA managed Domestic Building Insurance claims before and after the collapse of Porter Davis Homes Group on 31 March 2023, "the biggest builder collapse in Victoria's history, affecting over 1,700 homeowners nationally". In the six weeks after that collapse, VMIA received more DBI claims than in the entire previous financial year, and a quarter of them arrived in a single day.
The overall conclusion has two halves and they belong together.
"Both before and after the Porter Davis collapse, VMIA achieved a reasonable outcome for most homeowners, getting them 'back on track' and meeting the objectives of the DBI scheme. But for others, especially those living in a home with ongoing defects, the DBI scheme did not live up to its purpose."
The Ombudsman also found the insurer's process itself sound: "VMIA's process and the changes it made to deal with the Porter Davis collapse were reasonable and legal, however, some individual actions led to unfair outcomes, especially in complex claims."
"VMIA views its performance in managing DBI differently to the Ombudsman. It does not accept that some homeowners received unfair outcomes, and maintains that all claims were determined in line with DBI policy terms."
VMIA acknowledged that its communications "were inadequate in some respects", said it had made improvements, and conceded that a relatively small number of homeowners had a poor experience. It also recognised the toll the collapse took on its own staff and commended their performance.
One more finding deserves reporting precisely because it cuts the other way. Media coverage had suggested VMIA was using non-disparagement clauses to stop homeowners criticising it publicly. The Ombudsman checked. "We found that since July 2022, VMIA only proposed using a non-disparagement clause once", it related to a single longstanding dispute, "this was an isolated case", and "the clause was not included in the final agreement". A widely repeated claim, examined and not made out.
05Cost, delay, and what happened if you disagreed
The numbers behind the experience homeowners described.
To handle the volume, VMIA brought in law firms. The Ombudsman published what that cost: across four firms, $22,846,790 between 2022 and 2024, rising from $4,156,980 in 2022 to $11,354,850 in 2024. Some homeowners experienced the approach as adversarial. VMIA executives, the report records, "considered this was required to avoid extended delays".
On timing, the Ombudsman again found both things at once. "On average, there was no unreasonable delay in claims processing for Porter Davis homeowners, but where significant delays occurred, the process caused unreasonable personal and financial hardship for people." The average claim after the collapse took seven and a half months. Simple claims moved faster. Complex ones, the report says, "some dragged on for years". VMIA's average resolution time has been falling since 2010, an improvement the Ombudsman called admirable.
If you disagreed with a decision, the formal route was VCAT, described in the report as "a costly and time consuming option" and the only one available. Between 1 July 2022 and 30 June 2024, 280 homeowners applied. By October 2024 only around half had been resolved or settled, and applicants waited an average of 196 days, about six and a half months, just for voluntary mediation.
The Ombudsman recorded why most people did not go. Many disputes "related to a small number of defects or incomplete items but the bulk had been accepted", and for those homeowners "the time, effort and legal expense involved was not worth it, and they felt forced to accept the outcome".
06What the investigation found inside the claims team
The part of the report that is hardest to read, and it cuts in two directions at once.
The Ombudsman reviewed VMIA's internal communications, including Teams chats and emails between the people handling claims. What it found there is on the public record, and it belongs in any honest account of how these claims were decided.
"At times, VMIA staff lacked empathy and failed to try and understand homeowners' experiences. We saw a tendency among VMIA staff to view homeowners as roadblocks in the way of processing the claim. Sometimes VMIA staff would distrust or assume the worst of homeowners."
"We saw multiple examples of DBI team members dismissing homeowners' concerns and using inappropriate language to describe them."
One specific attitude is worth setting out because it goes directly to how a claim was valued. The Ombudsman records that VMIA's DBI team "told us that they sometimes considered the higher quotes obtained by homeowners to be deliberately inflated to maximise their payout. They referred to this as 'gaming the system'."
The Ombudsman then did the thing that makes this a finding rather than an impression. It went and looked. "It is likely 'gaming the system' does happen, however in a sample of files we reviewed we did not see evidence of this."
So homeowners who obtained their own quotes were, at least by some staff, suspected of inflating them, and when the investigator examined the files it could not find that happening. If you have ever wondered why an owner's quote and an insurer's quote sit so far apart, that exchange is the most useful thing in the report.
The other half, and it is not a footnote
The same section of the report sets out the conditions those staff were working in, and it is severe. About twelve claims handlers reported to one manager. Targets were set at two liability decisions per person per day in April 2023, then raised by early May to fifty decisions a day for the team. Targets "fluctuated multiple times during the same week", and at times staff had to report progress three times a day.
At the same time, the report records that staff "faced challenging behaviours from some homeowners, including abusive language and aggressive behaviour", that VMIA received abusive emails and calls and "credible threats of violence", and that some homeowners undertook what VMIA described as "digital stalking" to find staff on social media. One homeowner "messaged every person on LinkedIn with a VMIA profile". VMIA closed its office to the public after attempts by members of the public to gain access.
The Ombudsman draws those threads together itself: "the combined stressors of an intense workload, high expectations and difficult behaviour from some homeowners impacted the attitude that some VMIA staff had toward homeowners."
We are reporting the finding and the conditions together because that is what the report does, and because the point is not that a group of individuals behaved badly under pressure. It is that attitudes formed inside a claims team can reach the classification decisions that team is making, and the only protection against that is a file that records the reasons. Which brings this back to where the article started.
07What has changed since
Two changes matter, and neither is retrospective.
The definition gap has been addressed. The Ombudsman records that it "has been recognised and the new Building Legislation Amendment (Buyer Protections) Act 2025 includes a definition for incomplete works". That is the Ombudsman's statement of the Act's effect rather than a quotation from the Act itself, and we have flagged it as such rather than presenting it as the instrument's own words.
Responsibility has also moved. Domestic Building Insurance transferred to the Building and Plumbing Commission, which is why all nine of the Ombudsman's recommendations are directed at the Commission and the Government rather than at VMIA. The Commission agreed in principle with all of them, while noting that "these are recommendations to government and will be subject to the Government's consideration".
The first recommendation is the one this article has been about: that the policy "includes a plain language definition of 'defects' that clearly distinguishes it from 'incomplete works'". Others go to a single point of contact for complex claims, recording and communicating the reasons for decisions, providing homeowners with the inspection and technical reports behind those decisions, and creating a genuine internal review so VCAT is not the only door.
Separately, Domestic Building Insurance has been replaced for new work by the First Resort Home Warranty scheme from 1 July 2026. That does not affect a claim on an existing DBI policy. We have written about that change in home warranty insurance in Victoria and the first resort scheme.
08What this means if you are making a claim
Practical, and drawn directly from what the investigation found went wrong.
None of this requires you to distrust an assessor. It requires the file to contain reasons, because reasons are what an internal review, a conciliation or a tribunal can actually examine. That is the thread running through the whole investigation: not that decisions were made in bad faith, but that too often nobody wrote down why.
A claim of this kind is decided on documentation. Which requirements an item is measured against depends on the building’s class, and we have set out what the ten building classes are and how one is decided. What an assessor can act on is an item that has been located, measured, photographed and tied to the clause or standard it engages, with a stated reason for treating it as defective work rather than work that was simply never done.
Site Inspections prepares the independent defects report that a domestic building insurance claim is built on. Every item measured, photographed and referenced to the clause or standard it engages, with the reasoning written down, in the format an insurer and a rectifying builder can act on.
09Sources
Every quotation in this article is drawn from the document below.
No image, figure, chart or table from the Ombudsman's report is reproduced in this article. The report is published under a licence that does not permit commercial reuse, and that licence does not cover third party images at all. The four figures above were drawn by Site Inspections from the numbers published in the report. Numbers are facts and carry no copyright; the report's own artwork is not reproduced, traced or adapted anywhere in this article.
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