• Keep your insurance active before you retire – If a policy isn’t in place when damage happens, you won’t be covered later, even if the claim comes in after retirement.

• Public Liability (Occurrence-based) insurance – This needs to be active when the damage occurs. Consider keeping it in place for at least 12–18 months after retiring, especially to protect against delayed water damage claims.

• Professional Indemnity (Claims-made) insurance – This must be active when a claim is made and the claim must relate to an event that happened while you were insured. If you cancel it when you retire, you won’t be covered for any past work unless you put it into run-off.

• Run-off cover is essential for PI policies – Claims can come in years later, so you may need to maintain cover for 10–14 years after retirement to stay protected.

• You can still be personally liable – If you were a hands-on director (choosing subcontractors, supervising work), courts may hold you personally responsible even after your company is closed.

• Plan early – Talk to your insurance broker and seek legal advice well before you retire. You can’t insure against something that’s already happened. Don’t leave it too late.

Insurance considerations if you’re a builder or contractor thinking of retiring

To best protect you in retirement decisions on insurance need to be made well in advance. This is because liability and indemnity policies won’t cover claims arising from events before the policy started. So, if you didn’t have the policy in place when the event giving rise to the claim happened (eg. when you did the work or when the damage happens) then you won’t be insured, even if you do have cover in place years later when you’re notified of the claim.

General/public/broadform liability (and other “occurrence” based policy types)

This covers your liability for accidental damage to someone else’s property. It can also cover the financial loss suffered by someone because they are not able to use property that hasn’t been physically damaged (eg. if their business loses money because they can’t access their premises). It can also cover personal injury but these claims are rare because it only applies to injuries that aren’t already covered by ACC), such as mental illness, stress etc. Read more here.

It is known as an “occurrence” type of policy, which means it needs to be in place when the event giving rise to the claim happens. In most cases the “event” will be when damage occurs, or in the case of defective workmanship, when that work was done. Read more here.

Example

If you take out a policy today and then next week you’re notified of a claim for damage that happened three weeks prior, you won’t be covered. That’s because the “occurrence” happened before you took out the policy.

On the plus side, if you had cover in place when the damage happened you’ll still be insured for that event, even if the claim is notified to you after you’ve retired and no longer have an active policy in place.

Do you need to “run off” a public liability policy?

Run-off cover is when you continue to hold a policy after you have stopped doing the work that might give rise to a claim. Most commonly this happens when a person retires or a business is sold or closed down.

You can’t get run off cover for public liability insurance in the true sense, but you can continue to renew the policy even after you have retired. The reason this could be important goes back to the triggering event for a claim, which is when the damage occurs. While most of the time damage is immediately evident when it happens, there are a number of scenarios where this isn’t the case, or where damage may not occur for weeks or months after the work was actually completed. In this situation you don’t want to have cancelled or not renewed a policy, only to find that the damage has occurred months after the job was done and you’ve gone and cancelled your policy.

The best (or worst) example of this is water damage, where a pipe fitting comes loose or bursts, or a shower installation develops a leak for example. With both of these events, if you cancelled your policy between the time you did the job and the time the damage happens, you won’t be covered.

What if the claim is for defective workmanship, or damage caused by defective work?

This is complicated and can depend on the wording of your specific policy. In the case of defective work, some insurers consider the triggering event to be when the work was done, others will use the date of practical completion or handover of the work as the date that liability attaches to the insured party. In addition, some also require the policy to be in place when the damage that flows from the defective work happens. This means you would still need a policy in place at that point, which could be many years later. For example, if wiring was poorly installed but it took two years before a fire was caused. For some insurers the policy might need to still be in place when the fire started. But for others the triggering event would be when the defective work was done. 

There is also the scenario where:

1. defective work needs to be remediated, so the policy needs to be in place when that work was done in order to cover the cost of remediating those defects, and

2. there is also damage as a consequence, so the policy would also need to be in place when that damage occurred, to cover the repair of the damage.

Recommendation

The above example is why it can be prudent to let your public liability policy run for a period of time after you retire. While in theory this could happen anytime in the next 10 years, practically speaking you may consider a reasonable timeframe after which you can be comfortable that no issues are going to arise. With water damage, legal precedent (Arrow vs QBE) has established that timber damage from being wet will generally happen within 12-18 months.

Professional indemnity, including LBP cover (and other “claims made” policy types) 

This covers your liability for acts, errors and omissions in professional services that lead to a financial loss to a third party. For example, an error in the design or specification for a project, negligent project management, inspection or certification services or errors in your Record of Work documents etc.

It is known as a “claims made” type of policy, which means it needs to be in place at the time the claim is notified to you. Statutory liability and employers liability are also claims made policies, as are most liability policies. Claims made policies also come with a “retroactive date”. This means any event which happened before the retroactive date won’t be covered, even if the claim is notified when you do have a policy.

The retroactive date is typically the first date you took out the policy, which could have been many years earlier. Provided that you renew the policy continuously without a gap then your retroactive date will remain that very first date. If you do have a gap in cover however, the retroactive date may reset once you start the policy up again. This effectively means you’d lose cover for any events that happened before you restarted the cover and were given a new retroactive date. Some insurers allow you to specify an unlimited retroactive date, which means the policy will apply for any event in the past provided the claim is notified to you during the policy period. 

Example

If you take out a policy today (which creates a retroactive date) and then next week you’re notified of a claim for an error that happened three months earlier, you won’t be covered. That’s because the event giving rise to the claim happened before the retroactive date on the policy.

Do you need to “run off” a claims made policy?

Yes, this is very important. If you retire and cancel a claims made policy type you will have no cover at all for any claims that are notified to you after that date. Even if you had the policy in place when the event giving rise to the claim actually occurred.

Recommendation

What this means is that you should put the policy into run-off for as long as you need to be confident that no claims will be notified against you. In the extreme scenario this could be for up to 13 or 14 years or more after the event. This length of time comes as a result of legal precedent concerning how and from when limitations in the Limitations Act 2010 can apply. 

Personal liability considerations if you are a company director actively working on the tools

Cases such as Morton v Douglas Homes, Hay v Dodds and Dicks v Hobson Swann have established that a company director who exercises a level of control over subcontractor selection, materials and construction decisions can have a personal duty that is not shielded by operating through a limited liability company. In Dicks v Hobson Swann the court concluded that the director’s hands‑on role and decision-making authority meant he had personally assumed responsibility and thus was personally liable—even after the company was in liquidation. For a detailed opinion on this refer to: https://www.thornton.net.nz/news/2016/6/15/directors-liability-for-leaky-buildings

Considerations

You should take legal advice earlier rather than later to ensure you are not being exposed to personal liability despite operating through a limited liability company. From an insurance perspective, policies that insure a company also insure the company’s directors and employees. Even if you liquidate your company upon retirement you should take legal advice as to whether you retain some personal liability and should therefore maintain ongoing insurance coverage until that personal liability is extinguished. Bearing in mind that if you decide you need insurance at this point it really will be too late, since all the events that might give rise to a claim have already occurred, so won’t be covered by any new policy you start up at this point.

In a nutshell

If you start thinking about taking insurance when you’re about to retire you’re too late. It needs to be in place before the events that give rise to any claims happen, so that it is in place when those events (eg. the damage or loss) occur. Even if the claims aren’t notified to you until after you retire.

You also need to consider how you protect your assets in retirement if you have been operating as a company director but also “on the tools”. In this situation you may be exposed to personal liability for claims, even if the limited company itself has been liquidated.