Insurance Journal Forums

When an insured calls and says "I incorporated, is there anything I need to do" is it sufficient to simply change the named insured (if the carrier will let you) on an occurrence policy from the insured's sole prop name to the insured's corporation? This question assumes that there has been no material change in ownership. I'm wondering if there is an issue, especially with contractors. Thanks

Exceptional question...

I suggest naming both the old entity and the new one on all policies. Removing the old could effect coverage for past issues. Subsidiary and additional insured language are not broad enough to pick this up.

The current insurer should have no problem with listing both names.

If pro liability or D&O involved make sure you have documentation as to the carrier's understanding of the transaction so there is no question of prior acts coverage.

I agree with Scott that you need to add both names. This is critically important due to the Products/Completed Operations exposure. If the sole proprietor is not a Named Insured on the policy when a claim occurs they would have no coverage.

Let's say you install a roof and a few years later it collapses. You had coverage when it was installed, but you need coverage when the collapse occurs causing the BI or PD. If you are not named on the policy, you are out of luck.

lauren wrote:I agree with Scott that you need to add both names. This is critically important due to the Products/Completed Operations exposure. If the sole proprietor is not a Named Insured on the policy when a claim occurs they would have no coverage.

Let's say you install a roof and a few years later it collapses. You had coverage when it was installed, but you need coverage when the collapse occurs causing the BI or PD. If you are not named on the policy, you are out of luck.

I don't see what you are talking about on the P&CO exposure. These are both occurrence based coverages. Assuming that the policy is an occurence policy, the occurrence is still the date that the job was completed or the product was turned over to the customer.

Greg,

Better check your definition of occurrence.

--Sell a ladder on 1/1/07
--Ladder collapses 1/1/09

The occurrence is 2009

From the CGL...

13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Scott is correct, Greg. The "occurence" is the date of the accident. Also, when incorporating, there may have already been accidents or occurrences of which the insured is currently unaware--meaning accidents may have occurred while the insured was a proprietorship. You don't always know about an accident immediately. This is why old entities and insureds need to remain named on current policies.

It's always surprising to see the misconceptions under which agents operateand apparently are misleading their insureds when advising them. All agents need to take CIC or CPCU courses to obtain an in-depth understanding of what they sell.

No material change in ownership... does this mean a minor change? Perhaps bringing in a relative as a co-shareholder?

Anyway, if the new corp doesn't want the "old" entity included in their policy the "old" should buy a tail coverage from the carrier if it is offered. This would be cleaner, and any new owners would not be exposed to a claim from the prior entity.

Just a thought...

Swymmer

Swymmer,

Good comment. I took the situation to be a change from sole proprietor to corporation - entity change rather than an ownership change.

With ownership change I would insist on new policy and discontinued ops coverage for the old owners.

If my client was the old owner I would look for a contractual assumption of old liabilities by the new guys - maybe even try to get the old entity listed on the new policies. I wouldn't get it - but I'd ask for it.

If my client was the new guy I would push everything back to the discontinued ops coverage.

The view is influenced by perspective.

Ok hold on a minute. In the policy under "Who is an insured" it reads that you are an insured if you are an officer of the corporation.

So why would we need to name the individual switching from a sole prop to a corp, if under the corp's policy, he would be an "insured"?

Here is the language from the CGL:
~~~~~~~~~~~
SECTION II "" WHO IS AN INSURED
1. If you are designated in the Declarations as:

a. An individual, you and your spouse are insureds,
but only with respect to the conduct of a
business of which you are the sole owner.

d. An organization other than a partnership, joint
venture or limited liability company, you are an
insured. Your "executive officers" and directors
are insureds, but only with respect to their duties
as your officers or directors. Your stockholders
are also insureds, but only with respect
to their liability as stockholders.
~~~~~~~~~~~
A prior entity that's not listed is not covered. The officers are only covered in their duties as officers.

Why wouldn't you list the prior entity? I've never seen a premium charge made for it.

I agree with the suggestions posted, however, those of us located in CA - especially those writing small artisan Contractors - do NOT have carriers willing to list both entities on the same policy. So now what?!?

ins-is-my-life wrote:I agree with the suggestions posted, however, those of us located in CA - especially those writing small artisan Contractors - do NOT have carriers willing to list both entities on the same policy. So now what?!?

Yes I am running across this as well.