A commercial client in Connecticut dissolved his business with the Connecticut Secretary of State. However, he still has vehicles registered and insured in the business's name on the business auto policy (BAP). The insured does not want to cancel the BAP nor transfer the vehicles to his personal name and personal auto policy—as advised by the agency—until the end of the policy period a few months from now.

Q: In the event of a claim, could coverage be denied by the carrier since the business has been dissolved?

Response 1: What a mess. Is it the client attempting to postpone registration and tax transfer fees while leaving himself exposed? Tell him he is risking a lot. Also, you are obligated to disclose it to the insurer.

It is surprising that the entity could be legally dissolved when it still owns assets. My clients call their entities “inactive" while they work through dissolution. Their lawyers tell me the entity cannot be dissolved until all assets, liabilities, claims and taxes are dealt with to resolution. Your client might not have engaged legal and CPA counsel prior to filing dissolution documents, so it could be a tricky legal question as to whether or not the business really is dissolved.

You are correct there could be a coverage problem. You are concerned that the policy's named insured in theory is dissolved. And officers and employees do not exist because the company does not exist. And a non-existent entity cannot give permission to others to use its vehicles.

Double-check the facts with the client and then report the facts to the underwriter. Keep in mind your legal obligation as an agent of the insurer to disclose knowledge that you have and not conceal it. The underwriter can decide if the insurer is willing to stay on the risk and provide what might be ghost coverage until the renewal date.

Response 2: Make sure your communication with the customer is well documented. Put in writing to your customer that you recommend the title be transferred and that you are required to notify the carrier that the entity has been dissolved.

Notify the carrier. If it decides to send out a direct notice of cancellation, that is still better than a denied claim. Also, speak with your errors & omissions provider about the possibility of a potential claim based on your advice.

Response 3: I think you are quite right to flag this as an important issue because the insured is delusional. You should immediately report the situation to the insurer. This is not a case of deciding procedure based on the insured's expectations or preferences.

Response 4: I don't know if a claim would be denied but it would definitely hamper settlement. If the policy is in the now defunct business name, and the vehicles are titled to the now-defunct business, then the settlement check will be made payable to the defunct business.

I've had a claim like this before and we required a lot of paperwork to prove the person who had the accident was the insured and owner of the closed business. Why put yourself through that?

Response 5: The advice you are giving your insured is on target. As long as you have documented what you have told him and how he responded, you are not only safe but you cannot do much more. Notify the carrier of the change in ownership and registration if he has changed it. The carrier may cancel midterm because the risk has materially changed. That will provide the insured with a return in premium and you can find him the appropriate coverage at that point.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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