You will often hear about the difference between liability wordings. Some are known as “Claims Made” wordings and others are called “Loss Occurring” covers.
In many different ways, both types cause traps for the unsuspecting policyholder, particularly when they have made the decision to close their business or not renew due to financial constraints.
In this piece, we are focussing on the ramifications of what could occur if your Public and Products policy is lapsed or cancelled. Do you still carry some risk?
The answer is yes.
This comes down to what sort of event could occur and how it fits in with definition of “occurrence” or “Event” in the policy.
The following is a typical definition you will find:
"Occurrence means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury and/or Damage to Property and/or Advertising Injury that is neither expected nor intended (except for the matters set out in item e) of the definition of 'Personal Injury') from Your standpoint.
With respect to Personal Injury or Damage to Property, all events of a series consequent upon or attributable to one source or original cause shall be deemed to be one Occurrence.
All Advertising Injury arising out of the same injurious material or act (regardless of the frequency or repetition thereof, the number and kind of media used, or the number of claimants) shall be deemed to be one Occurrence."
If you manufacture a Product and the product fails and causes an injury to a person, is the event that caused the loss the day the Product was manufactured or the date of injury?
According to the definition above, the occurrence is an event which results in Personal Injury. That event date needs to be inside a current Public or Products liability policy’s period of insurance, at the time of the loss.
If you are a tradesman who installed a light fitting into your home, and three months later it fell out of ceiling and damaged furniture underneath, you may be hit with a claim from the Houseowner, which you have to defend. Was there a fault in how you installed the light fitting? Or was it a fault in the light fitting itself? If it was the Tradesman who supplied the light fitting, he will be drawn into a claim for the resultant damage caused. But what if he had let his cover lapse about a month before? Does the policy apply during the time he installed the light fitting or when it crashed to the floor, three months later? With the way an occurrence or event Is defined, it would be when it fell out of the ceiling. But he has no longer a policy to claim from.
So when closing a business or deciding that you cannot afford to carry that cover anymore, even if you completely stop working, you do maintain a continuous risk for a new event occurring that needs to have a current policy in force, on the date that new event occurred.
Public and Products Liability policies do not provide automatic run-off cover, more’s the pity. So, when making a decision to cancel or lapse a policy for whatever reason, know that you will still be exposed from your past work performed and any subsequent events.
This article was taken with permission from LMI group.