Pre-purchase inspections are meant to inform buyers as to the risks associated with property purchases based on the visual condition of the property. But when something like water staining is missed, or appears to have been missed, issues can escalate quickly.
This case study shows how an overlooked detail led to a professional indemnity claim, conflicting expert opinions and expensive litigation.
In this article
What happened
The case began in August 2016 when the inspector completed the pre-purchase inspection but didn’t report the water staining and timber blocking he saw in the subfloor. Four years later, the new owners discovered water damage and lodged a complaint.
A QBCC inspection in December 2020 found the issues should have been reported. The homeowners then issued a letter of demand and the insurer denied liability, stating the inspection met the required Standard and was fit for purpose.
In early 2022, both sides provided expert reports. The claimants argued the defects were visible in 2016, while the insurer’s expert said they were not reportable. The insurer maintained the inspector was not liable for the property damage.
The matter became litigated in September 2022 and mediation in December 2023 didn’t resolve the dispute. So in May 2024 the insurer authorised an $85,000 commercial offer based on a 50/50 assessment of liability.
Wet staining case: The evidence considered
Claimants’ evidence
- QBCC Report
- Leak Detection Report
- Independent expert report
These supported the argument that water staining and timber blocking were visible and should have been classified as a Major Defect by the inspector.
Inspector’s evidence
- Expert independent report
The inspector’s expert (retained by the Insurer) stated the issues were not major or minor defects under AS4349.1-2007 Appendix C, so they didn’t need to be reported.
Key issue
The inspector acknowledged to the QBCC that he saw the water staining and timber blocking but chose not to report them as Major or Minor Defects. This significantly affected the liability assessment.
Why liability was assessed at 50/50
The insurers considered the conflicting expert opinions and the inspector’s statement as to their consideration of the staining and how it was not reported. They concluded that a court could reasonably find for either party.
Two main factors influenced this:
- The inspector saw the water staining issues but didn’t include them in the report as Major or Minor Defects.
- Experts disagreed on whether the issues met the definition of a major defect or a minor defect linked to a major defect.
Based on this, they put forward a commercial offer of $85,000 to avoid the cost and risk of further litigation.
Understanding the standards involved
- Claimants argued the inspector failed to follow AS4349.1-2007, especially Table C1.
- The insurer said the inspection followed Appendix C, which applied to the type of inspection carried out.
- The QBCC report used Appendix A. This applies to a structural inspection, which is a service the inspector wasn’t engaged to perform.
- Under the relevant section of the Standard, the insurer argued there were no defined defects at the time of inspection.
- The Claimants and their expert argue that in failing to alert them to the potential risks to the property the inspector was negligent in his reporting and therefore failed to conduct the inspection with all due skill and care.
This difference in interpretation played a major role in the dispute.
Lessons for inspectors about water staining
What went well
The insurer could show, through expert evidence, that the defects may not have been serious enough in 2016 to require reporting. This supported the defence position.
What could have been done better
Several red flags should have led to clearer reporting:
Red flags
- Visible water staining (even if apparently from a non-current leak)
- Recent repairs (i.e. timber blocking and supports) with no clear explanation
- Recently renovated bathroom above the damaged area
- A shower test may not detect an intermittent leak
Stronger recommendations that should have been included
- Classify the issue as a major defect or a minor defect with potential to become major
- Ask the vendor about bathroom works and past repairs
- Recommend further investigation by a builder or bathroom specialist before purchasing the property
- Advise the buyer to monitor the area regularly if they choose to proceed with the purchase
These steps may have prevented the dispute.
Reducing risk in future inspections
Inspectors can better protect themselves by:
- Recording detailed observations and moisture readings
- Reporting any visible repairs or rectification work
- Making clear recommendations when risks are present
- Keeping thorough notes to show how decisions were made
Good documentation can make a big difference in defending a claim. Rapid Solutions is on a mission to educate our clients on how they can make meaningful improvements to their reporting to avoid stressful and expensive incidents like the above. Here are more real cases and resources to learn from:
- 3 Steps to Take with Pre-Purchase Pest and Building Inspections
- Keeping Records: How To Do It Efficiently and Why It Matters
- Bodily Injury: This Case Study Teaches Very Important Lessons
- Insurance Case Study: Claims Against Termite Pest Control Businesses
Final thoughts
This case shows how small omissions can become major issues. Even if a report meets the technical Standard, inspectors should also make sure they are clearly communicating potential risks to buyers.
When disputes reach court, the decision often depends on how strong and clear each side’s evidence is. As a result, with greater focus on consumer protection, inspectors should take a careful, well-documented approach when they spot possible defects.
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Are you covered?
Rapid Solutions has more than four decades of industry experience in providing property services businesses with affordable, quality professional indemnity insurance and general liability insurance. We offer personalised customer service with our in-house claims team that’s focused on fast turnaround times.
Contact Rapid Solutions today if you have questions about our insurance cover or training courses to support and protect your business.