Joined: 04/03/2018 11:51 AM EDT
Location: American Fork, UT
Hi Home Inspection Forum Readers!
When you're in the process of buying or selling an inspection business, insurance is rarely the first thing on your mind. However, planning for your prior acts and future coverage is an important part of ownership changes. We go over some of the important insurance-related considerations in this article.
What happens to my insurance policy when I sell my business? And other coverage questions relating to ownership changes
Could or have one of the following scenarios happened to you?
The owner of the home inspection company that you work for dies unexpectedly.
When he retires, the owner sells his home inspection business to you, his employee.
To get into the business, you buy the name of a prominent home inspection company in your area.
Whether you're considering entering or leaving the business or simply preparing for the future, it's important to know what your insurance policy says about changes in business ownership. Knowing your policy's conditions will better prepare you and your company for both unexpected tragedies and unforeseen opportunities. It will help you choose how to protect against liability, whether you choose to carry tail coverage or transfer that liability. In this article, we give you the basics.
You need to let your insurance company know when there's a change in ownership.
Under the section Who Is An Insured, your policy defines who automatically receives insurance coverage. For typical home inspection insurance coverage, your list of insureds looks something like this:
III.WHO IS AN INSURED
The following are insureds under the policy:
B. If your business is a sole proprietorship, you and your spouse are insureds, but only with respect to the conduct of your "inspection services".
C. If your business is a partnership or joint venture, you are an insured. Your members, your partners and their spouses are also insureds, but only with respect to the conduct of your "inspection services".
D. If your business is a limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your "inspection services". Your managers are insureds, but only with respect to their duties as your managers.
E. If your business is an organization other than a sole proprietorship, partnership, joint venture, or limited liability company, you are an insured. Your executive officers and directors are insureds, but only with respect to the conduct of your "inspection services". Your stockholders are also insureds, but only with respect to their liability as stockholders.
F. Your "employees", other than your executive officers and directors are insureds, but only for acts within the scope of their employment by you, or while performing duties related to the conduct of your "inspection services".
When an owner dies or a new owner inherits a business, insurance coverage doesn't automatically transfer into someone else's name. Thus, when an owner dies or changes, you need to let the insurance company know so that the new owner(s) can receive proper coverage. And, more importantly, you need to let the insurance company know who will take on the liability of the business going forward.
Be sure to make plans for your retroactive coverage.
When a business loses or gains a new owner, there are a lot of considerations to take into account. One important consideration is who's liable for the retroactive (prior acts) coverage for the business. In most cases, business owners can choose one of two options:
The original owner can keep the liability for past inspections and receive coverage for that liability with an extended reporting period (ERP) endorsement, or tail coverage. In cases in which the original owner has died, the owner's legal representative may purchase tail coverage on the deceased insured's behalf. (See "Transfer Of Your Rights And Duties Under This Policy" in the Conditions section of your insurance policy.)
Alternatively, the original owner may pass all liability, including past inspections performed by the business, to the new owner. That owner, who purchased the business, is responsible for all claims, including claims for the original owner's inspections. To protect against such claims, the new owner can carry continuous insurance coverage with a retroactive date reflecting that of the previous owner.
Owners should specify who will take on retroactive coverage in their purchasing agreements, which should be written by or with the help of professional legal counsel. As such, insurance companies may ask new owners for copies of their purchasing agreements to ensure proper coverage is given.