The Hidden Claim

My partner and I sat down with friends of ours who have what I call a hidden claim problem. They had a family owned business for years and over the course of those years worked on hundreds of projects. Business was good and they retired not too long ago.

Recently, they received notice and a demand for response to a charge that some work performed by their company well over five years ago was negligently preformed resulting in damages. This is what I mean by the hidden claim. It is the claim that surfaces years after the project or work with a client. Is the business covered?

It depends on whether the business owner purchased occurrence coverage or claims made coverage and purchased tail coverage at the end of the policy period. Their experience inspired me to write about the differences between occurrence coverage and claims made coverage.

Planning for what happens after you shut your doors or wind down is a critical consideration in a risk management program and your business. Consider some of the following questions:

• Will your business insurance coverage cover you after your business closes for claims related to work done while the business was open?
• Have you sought legal advice on how to properly wind down your business and followed all of the formalities?
• Have you arranged for storage of vital company documents - such as relevant insurance policies?
• Are there any claims or disputes that you are aware of prior to closing?

Hidden claims can be devastating on smaller businesses and retired professionals and disrupt an otherwise peaceful retirement. Consider them as a necessary part of the wind down process and plan for them.