Don’t Cancel Your Cover
The business has closed, it’s no longer trading, no more parts or products being manufactured or imported. No more installations or maintenance. No goods for sale.
So, time for retirement or a change in direction. We just need to cancel the insurance.
Well, not exactly. There is an element of insurance risk for a business once they have ceased trading. For a tradesman it would be the work they have installed and maintained which may cause an incident at a later date. An example would be a switchboard that causes a fire due to faulty wiring. The loss may cause subsequent damage to a building or worst case, death or injury. The time of loss is determined to be the occurrence date, therefore cover may have existed when the switchboard was installed but it should have still been in force when the incident occurred.
For the manufacturer of goods, their products may be discontinued but the element of risk remains if they cause damage or injury at a later date. So how long do you maintain run off cover?
Ideally, up to seven years is the industry standard. But not all businesses need cover for that long. For example, a restaurant would know within days or weeks of potential claims rather than years. Various States have their own legislation requirements and these would need to be addressed to clarify your situation.
Examples of run off cover for classes of insurance would include Public and Products Liability / Professional Indemnity / Directors & Officers Liability (Management Liability). Advice from your broker should be sought in these cases as to which basis of wording applies and any interruption to cover should be avoided so a claim won’t be jeopardised.
When a business is sold, the risk of potential future claims may be transferred to the new owner but this can’t be assumed, it would be negotiated and details of the sale would need to be reviewed with legal opinion.
The good news regarding run off cover is that it does get cheaper year after year due to decreasing exposure, subject to no claims activity. You can also negotiate a number of years up front with an insurer. This is suggested if a sale of the business occurs or retirement beckons. Be sure to get both legal and insurance advice for peace of mind. You can then close the door with confidence.