Business Planning – Are You Contemplating Changes?
Discontinued Products and Completed Operations Coverage
Most general liability insurance policies respond to incidents on an occurrence basis, which typically means losses must occur within the policy coverage territory and during the policy period to be covered. The occurrence date is generally the date the injury or damage actually happened, not when the work was done or the product was made. If discontinued products and operations coverage is not purchased after an insurance policy is cancelled, personal assets are left exposed to legal defense and settlement costs for losses occurring after the cancellation date.
When to Consider Purchasing Discontinued Products and Operations Coverage
Going Out of Business
Products your company produces may remain in the marketplace long after your business has ceased operations. In addition, work you have finished may exist for many years after you have completed it. Defects in your products or completed work may injure someone after your company has gone out of business. If the injured party sues you, the suit will not be covered by your former company’s liability policy.
Restructuring Your Business
You are changing from one type of legal entity to another. For example, you have switched from a partnership (John Smith and Bill Smith) to a corporation (Smith Inc.). The policy designating Smith Inc. as the named insured will not respond to claims against the partnership. The partnership will need to buy discontinued products and completed operations insurance to protect the partners from claims that arise from injuries that occur after the reorganization.
Buying a Business
You are buying a business and want to protect yourself against future bodily injury or property damage claims that arise out of products sold or work completed by the seller before the company was sold.
Selling Your Business
If the buyer will not assume liability for injuries caused by products sold before the date of sale and/or requires this to be a condition of the sale, you must assume liability for injuries that occur after the sale date resulting from products you sold prior to the sale.
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