Author: Bill Wilson
This article is about the often misunderstood exposure of discontinued operations.
A homebuilder decided to hang up his hammer and retire to Florida. He contacted his agent to see what he needed to do about his insurance, which was coming up for renewal. The CSR advised him that he needed to do nothing...he had a CGL occurrence form and the CSR told him that, unlike a claims-made form, he was protected "forever into the future" for claims. So, the contractor retired to Florida and enjoyed the good life...for two years.
At that time, the deck on a home he had built on a hillside collapsed during a party, sending 35 people snowboarding down the hill without snowboards...or snow. Luckily, no one was killed, but several people were injured enough to require medical attention. A claim was filed against the contractor who contacted his agent who contacted the carrier who advised that he had no coverage.
At this point, the CSR, producer and agency owner finally took the time to read the contractor's CGL policy. What they learned was that, while the CGL does indeed cover claims "forever into the future," the claim must arise out of an occurrence that takes place during the policy period. An all too common misconception is that the occurrence happens at the time of the negligence...in this case, when the deck was inadequately secured.
However, a careful reading of the CGL policy's Insuring Agreement reveals that "This insurance applies to "bodily injury" and "property damage" only if...[t]he "bodily injury" or "property damage" occurs during the policy period." So, no CGL coverage. Fortunately (for the contractor), the claim was covered...by the agency's E&O policy.
Discontinued operations coverage and discontinued products coverage is a necessity for most contractors, manufacturers and others with similar exposures. Unfortunately, not every company writes this coverage, so it may be necessary to provide it on a surplus lines basis. So, be wary of this often misunderstood exposure...or you may find that your agency's operations will be suspended.