Sunset Insurance Clauses Explained

If you own a construction company, remodeling company or any other type of business with a higher-than-average risk of liability, it’s extremely important to know how long your general liability insurance policy covers any liability your company may be responsible for.

No one likes to talk about liability or getting sued for damages, but that’s the reality that we live in. It’s important to have a complete grasp of your policy to make sure your company and livelihood are protected.

Most general liability insurance policies in California protect the insurance holder from claims up to ten years after the policy expires. This is because in California there is a ten-year limit for construction lawsuits (liability from a construction company must be discovered within ten years of the project’s completion in order for the victim to sue).

Some commercial liability policies, however, cover businesses for a much shorter period of time due to specific “Sunset Clauses” in the policy. A sunset clause specifies when an insurance company will no longer cover liability claims after the expiration of the policy. The amount of time varies. Some sunset clauses cover a business for five years, while others cover a business for four or even just two years.

Insurance companies like shorter sunset clauses for an obvious reason. The less amount of time they have to cover a business after the expiration of the commercial liability insurance policy, the less likely they’ll have to pay out a liability claim.

Often, general liability insurance policies with shorter sunset clauses will be less expensive than commercial liability policies with the full ten-year coverage. Business owners may jump at that lower price tag, but they may not be so eager if they realized what type of risk they were putting their company (and themselves) in.

If a company’s general liability policy contains a 5-year sunset clause, and a claim is made against the company during the sixth year, they could be on the line for all damages that occurred.

In other words, it’s a really good idea to know if your current policy contains a sunset clause. If you’re not covered for the full ten years after your policy expires, it’s paramount that you take action to make sure your company is protected for that period. There are alternate solutions if you’re already locked into a sunset clause.

Contact us at Fusco & Orsini Insurance Services. We’d be happy to review your general liability insurance policy with you, let you know if we see any gaps in coverage and help you fill them to keep your company full protected from liability.