An Iowa agency insured a plumbing and heating business with a GCL policy on a standard CG 00 01 occurrence form for many years before it closed last summer. This past spring, a minor fire potentially resulted from a furnace installation that occurred while the policy was in force and the company was still in business.

The agency submits a claim, but the insurance company maintains there is no coverage under the CGL because the fire occurred after policy cancellation.

Q: "Is this correct? I normally only worry about tail coverage when we cancel a claims-made form. Should we be selling 'tails' or discontinued products coverage for all businesses that close on an occurrence form? Have we been missing the mark?”

A: “A brief Big ‘I’ Virtual University (VU) article, ‘Discontinued Operations,’ tackles this issue. Neither the occurrence nor claims-made CGL policies covers occurrences that result in BI or PD after expiration of the policy. The claims-made tail coverage simply extends the time period for making a claim and the occurrence still must have resulted in BI or PD during the policy period (or back to the retro date on the claims-made policy). You must either maintain discontinued operations coverage or keep a possibly minimum premium policy in force as long as you could be sued.

Years ago, ISO had a discontinued operations code that was ‘A’ rated by insurers. A common approach was issuing a ‘perpetual’ policy at close to the same premium the year after going out of business, then at 50% the next year, 25% the next year, minimum premium the next or something like that, depending on the type of business or product.

I’m not sure how many carriers still offer this today. At one time I had a list of E&S carriers that offered a specific product, but it became woefully out of date. How long should insureds carry this coverage? An attorney would have to answer that question. For PD claims, the statute of repose might be long enough—usually in the neighborhood of 5-10 years. For BI claims, it could be indefinite since any statute of limitations might begin to toll only when the injury occurs.

For additional information on this topic, check out two more VU articles: ‘Some Common Coverage Misconceptions of the CGL Policy’ by Craig Stanovich and ‘Consider Liability Issues as Business Structure Changes or Ends’ by Don Malecki.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.