Products Exposure - Selling My Company / Retirement
In today’s business environment, selling a company is a key component to a competitive strategy. At the same time, such major transitions create a wide variety of challenges, including insurance and risk-management issues such as products exposure. Before you exit your business, it is imperative to receive proper legal counsel on how laws require you to handle your disposition. It is also imperative that you are working with a competent insurance professional who can guide you through your options.
When you exit a business, you typically do not exit subsequent liability. Assuming your product remains in use, it carries the potential to cause bodily injury or property damage. This issue is of particular concern for products with latency in their reporting such as pharmaceuticals, nutraceuticals or medical devices. Let’s assume a pharmaceutical manufacturer acquires a complementary drug company through an "assets only" agreement. Several years later, suit is brought after discovering that the former firm’s products had caused major bodily injury prior to the buyout. The predecessor is found liable to pay the multi-million dollar claim. If you stop buying insurance after you sell or close a business you may not be protected against defense or indemnity costs resulting from any claims, even if these products were sold or manufactured under you ownership.
You must decide whether or not you want to protect your liabilities by keeping insurance in place as it may be needed long after they expire. The decision you make will be dependent upon whether you have a claims-made or occurrence insurance policy.
If you have a claims-made insurance policy, be aware that it only pays for claims reported during the policy period plus an industry standard 30 or 60 -day grace period after expiration or cancellation. It can be extended with a tail policy, which is synonymous with extended reporting period provisions. It is imperative to realize that a tail policy includes several important limitations:
(1) Coverage applies only if the wrongful act giving rise to the reported claim took place duringthe expired/canceled policy period. Thus, there is no tail coverage available for wrongful acts if committed during the period of tail coverage.
(2) Tail coverage applies for a limited time period, generally 1 year.
(3) Purchasing tail coverage for a specific time period does not reinstate the policy's aggregate limit of liability.
The tail option is fraught with peril if you have product that is still being used in the marketplace.
If you have an occurrence form, the policy will only respond to claims that occur during the policy period in force at the time of the loss. In this scenario, you will no longer have coverage for a claim that occurs after the expiration of the policy.
Fortunately there are potential solutions to these problems. Products liability risks can be transferred via customized products liability policies, which should be written for a specified period of time based on the likely residual lifespan of your products. Such insurance can help protect owners from claims due to future bodily injury or property damage caused by products manufactured, sold or distributed before the business is sold or closed. If you are on an occurrence form you always have the option to continue purchasing liability policies with greatly reduced sales exposures. With this protection, business owners can enjoy their future and worry less about the past.
Swingle, Collins & Associates specializes in products exposure coverage The descriptions of coverages listed on this website are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle, Collins & Associates can assist in meeting you coverage needs for: pharmaceuticals, nutraceuticals, or selling a business please contact your dedicated risk manager to discuss the benefits and services of products exposure coverage.
The information contained on this page is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request.