Insurance policies can lapse because of administrative issues or lack of funds. Letting coverage lapse is never a good thing. Whether it is Business Auto, Business Owners Coverage, Professional Liability Insurance or Workers Compensation letting your insurance coverage lapse can be costly.
With Occurrence Policies such as Business Auto, Business Owners and Workers Compensation letting the coverage lapse can leave permanent gaps in your coverage. But with property exposures you pretty much know if you have a loss when the loss occurs. This gap might exposure your assets to uninsured liability claims that you were not even aware of. But again, with the above occurrence policies normally you are aware of liability claims when they occur. Your premiums might increase though once you decide to get coverage inforce again. Insurers do not like insureds that let their coverage lapse.
With Workers Compensation, most states require the insurer to report any coverage lapse to the workers compensation bureau of that state. The state Work Comp bureau may fine the business for not having workers compensation in place.
With Claims-Made Insurance letting coverage lapse exposes the firm to uninsured losses for past acts. Remember with Claims-Made Coverage, if a policy lapses and no extended reporting period endorsement is put in place coverage ceases for past acts. Many times, this is a permanent loss of past acts coverage. While it is sometimes possible to restore prior acts coverage it is expensive. There could have been claims lurking that you knew nothing about that pop up 2 or 3 years later. Because of the nature of claims-made coverage there is now no insurer to report the claim to or to provide a defense. These uninsured losses can be devastating.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080 |