How to handle retroactive dates for Premises Pollution Liability policies when a business sells
By Chelsea Albright, Vice President
When we hear that a client is either purchasing or selling their business, a common question we receive is “what actions should take place for the seller’s insurance policy and how should we set up the buyer’s insurance policy?” Premises Pollution policies are written on a claims made basis and will have retroactive dates to consider. The first question we ask is “what is the structure of the sale?” Depending on the answer, the account would be handled differently.
During an asset sale the seller typically retains liabilities and debts. This is an assets only sale. In this case, the seller should consider purchasing an Extending Reporting Period (ERP) for their current in force policy. Claims Made policies usually offer a 1-3 year option for ERPs for an additional premium, and it is important for your client to consider purchasing this coverage due to the claims made reporting nature of the policy. There is a quick timeframe that the insured has to make this decision to add this coverage. For the buyer, where they are not acquiring previous liabilities from the date of the sale, their Premises Pollution policies would be issued with the retroactive date of inception for new coverage going forward. They would not want the seller’s prior retroactive dates.
During a stock sale, both the assets and liabilities are typically being purchased. The buyer will be assuming prior liabilities of the business’s operations. If the sale arises midterm during the seller’s policy term, they may be able to transfer their current policy to the new owners. Most policies are designed with this capability; however, the seller will still need to notify and discuss this with the insurance company as it is not automatically assumed. If the sale happens at the end of the seller’s policy term, the buyer would need to have a new policy starting with the seller’s expiration date so there is no lapse in coverage. The buyer would need to notify the insurance company that the company sale included liabilities and that they need to retain the prior retroactive dates of coverage. In this scenario, the seller would not need to purchase ERP options.
Whether your client is buying or selling a portfolio of residential locations or a single manufacturing site, it is important to understand the differences in the structure of the sale and how this impacts their insurance options for their Premises Pollution coverage. If you have any questions about retroactive dates, please feel free to contact us or call (800) 596-2156.