Blog Question – Run off cover for an air conditioning contractor

I received the following question during the week:

Hi Allan,

I hope you’ve been well.

We’ve got a small Air-conditioning sole trader who has ceased trading recently and wishes to lapse their renewal terms (premium $630.81).

We’ve recommended that they consider maintaining their General Liability cover in run-off in order to cover their on-going products liability risk.

I just wanted to confirm that given the entity type, sole trader or company, ceases trading and deregisters/cancels ABN that this has no bearing on the risk exposure i.e. the requirement for run-off cover is still relevant?

And in terms of pricing, is it that as time goes on the risk diminishes therefore so should the pricing?

If you could assist with these queries it would be appreciated.

Regards,

Ryan” [surname and email address provided]

My response to Ryan was as follows:

Hi Ryan

If your client is a sole trader, just deregistering from GST is not enough. He/she carries unlimited liability for any action of negligence that may be brought against them.

Even if they are found not liable, they will have to fund and manage the defence of any proceeding brought against them.

Over the past year alone I have tried to assist business owners (handymen, insulation installers, plumbers, carpenters and motor mechanics) where an action was bought against them for something that allegedly occurred after they stopped trading.

It could be a fire caused by an air conditioner and an allegation may be made that it was installed incorrectly. This is where the policy is important.

The difficulty is finding an insurer that will write run off cover under a Comprehensive General Liability (“CGL”) [Public and Products Liability] wording.  Sometimes it is necessary to simply say the business owner has wound back and take out cover on a minimum turnover.

This also protects the client should they do some weekend or other casual work in the future.

It is a lesser risk for a Pty Ltd company where they are completely wound up but even then the directors should retain run off cover under their Directors and Officers cover.

Hope this helps.

Allan

I received this email in reply:

Thanks Allan,

Much appreciated, your knowledge is priceless.

Regards,

Ryan”

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