I’m closing a small engineering bus

[structineer]

I’m closing a small engineering business that I operated for 4 years and I want to be on the safe side and get tail coverage. The statute of limitations is 8 years in my state. My insurance carrier says I will need to renew my policy for each year for 7 years and then get a 3 year tail policy to account for a 2 year additional reporting term that the state gives. I think it is ridiculous that I’d need to renew my policy and pay the same premium I am paying now operating my business when I will not be operating it moving forward and will not expose them to new liabilities. I thought I could pay for tail coverage for the entire term and I don’t want to renew as if I’m still in business. The cost is quite hefty. Does this sound right? Does anyone know much about tail versus run off coverage? Thanks

 

[Ron]

Check with an attorney! The statute of limitations in Georgia is 4 years. The statute of repose is 8 years. There's a difference and you should know the legal implications of both.

As a design professional, you are more likely to be tagged by a latent defect than a patent defect. Latent defects are the ones that can extend the statute of limitations into the statute of repose.




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[structineer]

Thanks Ron. This is Georgia and I misspoke. You are right, the statute of repose is 8 years not the statute of limitations.

 

[Canuck65]

In my experience, the insurance company charged 100% of the premium I was paying while active for the first year following closure, 75% the second year, and then 50% thereafter per year until such time as I decided I was comfortable not paying.

 

[msquared48]

Isn’t the statute of repose used by undertakers?

Mike McCann, PE, SE (WA)

 

[Ron]

Mike...recumbently, yes.


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[Aesur]

It was my understanding that insurance claims were filed against the insurance at the time of the project. If this is true, then why would you continue paying insurance if the company was closing? This information came from the previous firm I worked for when they ran into a few insurance claims as part of the "sue everyone on the project and hope someone settles."

 

[Ron]

Aesur....professional liability insurance is predicated upon a "claims made basis". That means that a claim can be made after the business closes, since we are generally liable through the period of the statute of repose we want to have insurance to cover such instances.


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[structineer]

Ron is right. In GA, the statute of repose is 8 + 2 years, so you have to maintain coverage for 10 years after your last project because a claim can be made against you during this period. The problem is that there is no insurance that will cover you after you close your business for more than the tail period or extended reporting period that is detailed on your policy. Mine is 3 years. I could have gotten a tail for up to 5 years with a different policy. But, what good does that do? I'd still be exposed up to the 10 year limit. I did the hard thing and approached my boss and they were kind enough to add me to their policy. Get this, it cost less to add me to their policy and cover me for the remaining 10 years than it was costing me for a single year of coverage through my insurance. The take away is that if you have a business, you better check the statute of repose because you cannot just close a business and get full coverage in some states. The insurance companies do not want to cover you without you having income. You really have to sell the business to someone else that is going to continue coverage.

 

[Forensic74]

I have been on quite a few cases now where the engineer or architect made a boo boo and is no longer in business...... there never seems to be a desire to go after them, but rather go after anyone else involved in the project who still is operating. Actually, having tail coverage may make you a target

Are you concerned they would come after you personally? I mean, unless you are independently wealthy, they're not likely going to bother squeezing blood from a turnip. Might make more sense to talk with an attorney to set up your personal finances in a way the produces a few more hurdles for anyone who would even think of coming after your directly.