Every Registered Electrical Contractor will maintain adequate liability insurance for the length of their trading lives. But what happens when an Electrical Contractor ceases to trade for a reason such as retirement? Do they have any protection?
A large number of people believe that if cover was in place when they were trading then they are adequately protected against claims that arise from work done during this time. This, however, is not always the case. Claims that occur during the policy period are covered but, once the Insurance policy period has expired, no cover exists for any claim that may occur after that date.
General Liability Insurances, such as Public & Employers Liability are arranged on, what insurance companies refer to as a ‘claims occurring’, basis. Employers Liability covers ‘injury caused during the period of indemnity’, Public Liability covers ‘damage/injury happening during the period of indemnity’ and Products Liability covers ‘injury/damage occurring during the period of indemnity’. So, basically the different covers protect against insured claims, where the incident occurs during the period the insurance policy is in force, only.
For example, if an Electrical Contractor retires on 31st December and the liability policy lapses on the same day and if subsequently a fire occurs 10 days later, the fire has occurred after the insurance policy has expired and no cover is in force. This remains true, even though the work that caused the damage was done previously, in a period when the Electrical Contractor was insured.
The situation is more clear cut for Professional Indemnity insurance. Not all Electrical Contractors carry Professional Indemnity Insurance but where they do, this insurance is arranged on, what insurers refer to as a ‘claims made’ basis. This means that the policy must be current when the claim is made. Where the cover is cancelled or not renewed, for example, after retirement, all cover ceases immediately, regardless of when the work was done or the incident occurred.
So, what should an Electrical Contractor do to ensure full protection, after ceasing to trade? An Electrical Contractor who ceases trading should ensure they arrange ‘run-off’ cover. This cover does not need to be arranged for employees, as there will no longer be any staff but, the Electrical Contractor should consider arranging insurance for Public & Products Liability risks and Professional Indemnity Insurance.
‘Run-off’ cover will extend the protection in annual periods and provide protection against any claims that occur in the extended period, arising out of work that was done before trading ceased.
The risk is of course less than when the Electrical Contractor was engaged in fulltime employment and as time passes the risk will continue to reduce until such time as the Electrical Contractor is happy to allow cover to lapse completely. The cost of ‘run-off’ cover would reflect this reduction in exposure.
This cover is generally, only available from the Insurance Company who held an insurance policy during the trading period so the first step is to contact your existing broker or insurer, for advice. An annual ‘run-off’ policy can then be arranged and the situation can be reviewed after 12 months at which time a further reduction in premium should be available.