Claims to a taxpayer-funded housing insurance scheme were plagued by poor communication and a lack of transparency, leaving some to experience a "double catastrophe".
In a report tabled in Victorian parliament on Wednesday, the state ombudsman exposed delays with the Victorian Managed Insurance Authority's handling claims following the collapse of multiple major building companies.
The government authority manages domestic building insurance claims when a builder is unable to finish the works due to insolvency.
About 1700 properties across Victoria and Queensland were left in limbo when Porter Davis went into liquidation in March 2023.
While the taxpayer-funded scheme achieved a reasonable outcome for most home owners, Ombudsman Marlo Baragwanath found there were issues with its processes, especially with complex claims.
"One home owner described their experience as a 'double catastrophe' - first the collapse of their builder, and then their experience with (the authority)," Ms Baragwanath said.
"Home ownership is an aspiration for many Victorians - so it's critical that there are fair systems and processes in place to enable people to realise that ambition."
Most Porter Davis home owners didn't face unreasonable delays on claims but those that did endured serious personal and financial hardship.
The authority should have exercised discretion within the bounds of its policies to achieve fair and timely outcomes for home owners, the ombudsman said.
The public service watchdog also said the body's dispute-handling processes and practices met obligations but it wasn't always fair and reasonable.
The report handed down nine recommendations, centred on improving the processes for managing domestic building insurance, strengthening communication with home owners and increasing overall transparency.
Victoria's new Building and Plumbing Commission and the Department of Transport and Planning accepted the recommendations in principle.
More than 120 submissions, 260 complaints and 46 claims were received by the ombudsman.
About 560 Porter Davis clients were not covered under the scheme despite paying the construction giant before it collapsed, forcing the state government to set up a separate $15 million rescue package.
Under Victorian laws enacted in 2024, builders who fail to take out domestic building insurance face a fine of up to $96,000 for individuals and $480,000 for companies.
