QUESTION
Hi - after recommending a client who is a retiring plumber continue with public liability for an annual term after retiring, I received this response from their solicitor. I'd appreciate your thoughts on their concerns.
"Accordingly, I have reviewed Vero’s Broadform Liability policy terms and note the following:
1. The indemnity applies “for all amounts the insured becomes legally liable to pay as direct compensation consequent upon..…(b) damage to property; happening …. during the period of insurance as a result of an occurrence in connection with the business”.
2. The Additional Extension of "Defective Workmanship" provides that insurer will cover the insured for his legal liability to pay direct compensation….. consequent upon accidental damage to property on which the insured is or has been working, where the damage is caused by the insured's defective workmanship, “providing that (a) the defective workmanship is done or undertaken by any of the persons insured during the period of insurance”; and…..
3. The "period of insurance" is defined as the period shown in the schedule commencing on the “From” date and expiring at 4 pm on the “To” date.
If the insured wishes to protect himself against any damage that might arise from any defective workmanship carried out prior to his retirement, it seems that the Additional Extension of Defective Workmanship specifically excludes cover for any such work undertaken prior to the period of insurance.
Accordingly, unless you are proposing an additional Policy or Endorsement which covers him for his earlier works prior to retirement, please clarify why you are recommending that he continue with the current Broadform cover, which would not seem to provide any such protection. What am I missing?"
EXPERT ANSWER: Crossley Gates, Glaistor Keegan
This query raises two issues:
1. Why should the plumber buy an extra year's cover after he retires, as recommended by the broker?
While the client's lawyer's analysis is correct as far as it goes, as some of the commenters have pointed out, the key to cover is property damage occurring during the period of insurance. Any property damage that occurs once cover lapses (the client having retired) will not be covered, even if it originates from a negligent act before retirement when cover was in place. That policy doesn't respond because no property damage occurred during it.
This delay between the negligent act occurring and the property damage occurring can happen. When I worked in-house at NZI, I was referred to a contested declinature involving this same scenario. The electrician negligently rewired a house. This went undiscovered for about a year. When the house caught fire a year later, the electrician had retired and had lapsed his liability cover. When he was held liable, he lodged a claim under his last policy year when he negligently rewired the house. I had to explain to him that this doesn't trigger the cover. As the damage occurred after the policy lapsed, NZI couldn't help him.
2. Does the same issue arise under the Defective Workmanship extension?
Assuming that extension overrides an existing exclusion (meaning cover must still come through the insuring clause), the same issue does arise. However, the extension adds a second prerequisite to cover. Not only must the damage occur during the period of insurance (because of the insuring clause), but the negligent (defective) workmanship must occur then as well, because of what the extension says. This means that cover under this extension is only available when both the negligent workmanship and the damage occur during the same period of insurance.
