Contractors facing mergers, operational changes or economic decisions have considered this question. Unfortunately, there is no absolute answer. As long as you will have something to protect, the safest practice is to buy insurance.

The period of time each insurance policy covers is an important issue a contractor should consider. The vast majority of Commercial General Liability (CGL) insurance polices are written on an "occurrence" basis. This means that the policy will cover losses occurring during that policy period usually one year. However, in terms of construction liability, determining exactly when a loss occurs can become quite complex.

Many carriers take the position that all occurrence policies in effect from the time of original construction, to the time a lawsuit is completely resolved must respond to a claim. Others interpret coverage so that a policy in effect during some part of the loss occurrence should respond to a claim.

Newer insurance policies have changed the definition of an "occurrence." These changes are often referred to as Montrose endorsements. By and large, they attempt to have the policy response limited, or they don't cover continuing losses such as construction defect or environmental claims, if they were known prior to the beginning date of the policy.

In a construction defect or personal injury case, every policy in effect during the time that a damage or injury "occurred" must respond on your behalf and provide a defense to the claim. In the last few years, some policies have changed this rule through the use of Montrose endorsements. It is extremely important to review any changes they may have made to your GL policy.

Some policies already paid for may not protect you in the future. If you have an occurrence policy in effect after you have completed construction on a project and that policy did not contain a Montrose endorsement, and any alleged claim is a continuing claim, then you may already have completed operations coverage. However, relying solely upon previously purchased completed operations insurance can pose problems. If policy limits become exhausted due to prior claims or if your policies contain Montrose endorsements, you may not be covered for continuous losses that become known after the policy expires.

If your last construction project ends at the same time your last insurance policy expires, it could pose a problem. Many carriers take the position that if the policy expired at the time that ownership of your work was transferred, then a property damage claim is not covered. In this situation, if there was no new occurrence policy in effect after the work was transferred, then there may not be coverage. In addition, many subcontractors sign agreements with owners to maintain completed operations coverage, naming the owner as an additional insured for the full 10-year statute of limitations. Failure to maintain this coverage for the entire statute may subject the contractor to liability to the owner.

When contemplating the idea of not purchasing continuing insurance, consider the following prior to making your decision:

• How many previous insurance policies are intact?
• What types of Montrose endorsements were contained in those limits?
• How long is your exposure for those prior projects?
  
  Relying upon only one occurrence-based policy for completed operations may or may not be wise, given your own risk history.
• How long will you be vulnerable to getting sued on a construction project?
  
  Many people rely on the 10-year statute of limitations for protection. There are exceptions to this. The first being that a developer of a residential project who is sued within 10 years from the date the project was completed, has more than the 10 years to sue a subcontractor for indemnity.

Another exception is personal injuries arising out of negligent construction. If there is liability, the statute of limitations is one year from the date of injury, regardless of when the construction project was completed. In addition, the 10-year statute for builders generally runs from the date of completion of each constructed unit. If a subcontractor has an indemnity obligation, liability can extend beyond 10 years from completion of the subcontractor's work.

Make sure you have policies in effect for the life of the statute of limitations. If you decide to close your business and do not have any assets to protect, this may be wise.

If you are no longer in business or have formed a Limited Liability Corporation (LLC), do you have to buy insurance forever? The safest practice is to continue to buy insurance for as long as you will have something to protect. Insurance products known as "discontinued operations" policies are available. A discontinued operations policy is priced like an excess policy and covers all of your past liabilities for the duration of the statute of limitations. These policies can have variations so review their wording carefully.

Aside from protecting an LLC, a benefit to buying a discontinued operations policy is in demonstrating to future creditors that the LLC is acting in good faith to buy protection beyond the life of the corporation.

As long as there is risk, buy an insurance policy. Consider purchasing a discontinued operations policy for your closed business or LLC to make sure that nothing can impact your financial wellbeing. Above all, take the time to analyze your own situation to determine your insurance needs. Watch your policy language and remember how endorsements and statutes can limit or increase your protection. There are no absolute rules that may be solely relied upon in this area. Consult with your financial and legal advisors to decide what is best for you.