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Closing down: What to do if your organisation has insurance

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Many organisations will have a range of insurance cover that helps to manage risk. You’ll need to check you have the right protection for any potential liabilities as you close.

Remember, insurance cover can vary depending on the provider, your individual policy and the legal form of your organisation.

This guidance is introductory only. It's essential you discuss your situation with your insurance provider and always get specialist advice relevant to your organisation.

Types of cover

The type of insurance cover previously held by your organisation will affect whether it will cover claims made after you close.

As a rule, there are two main types of insurance policies.

If you’ve held a ‘claims made’ basis cover, you may need to consider purchasing a new ‘run-off’ policy. This is insurance cover taken out when an organisation is due to close.

A ‘run off’ policy will also offer protection for claims relating to alleged historical issues. For example, if someone alleged that they suffered harm due to the work of your organisation, but this only came to light after the organisation has closed. In this scenario the ‘run-off’ cover may protect those previously engaged in the organisation from this liability.

‘Run off’ cover will be especially important if your organisation delivered regulated services like health and social care or financial advice.

The cost of ‘run off’ cover is usually lower than your usual premiums and may reduce further over time. This is because the risk of a claim will go down the longer your organisation is closed. You may need to consider ‘run-off’ coverage for a number of years depending on the activities your organisation delivered.

For either type of insurance any claim will need to meet the policy terms and conditions. Claims should be reported to the insurer in line with their claims reporting conditions. These terms may include duties on you to provide information about your activities or the circumstances leading to the incident. Failure to meet these terms may invalidate the policy.

Other issues to consider

Stay legal

It’s a legal requirement for any organisation which employs staff or operates vehicles on public roads to hold relevant insurance.

You must keep these policies in place up to the very end of all activities and closure of your organisation.

Inform your provider

When the decision to close has been made you should confirm with your insurance provider:

  • when you're due to cease activities
  • when the legal entity will formally close.

Identify who will be a contact for your provider

Your insurer will likely want to know who they should contact if there are any issues after your organisation closes.

The main contact for your insurer may require access to documentation relevant to the policy. For example, records about vehicles if you had motor insurance, or HR records if you had employee insurance.

Stay risk aware

Your insurance policy will be specific to your organisation, its work and the information you gave the insurer when you took out the policy.

As you wind down your activities, you should make sure that you maintain risk management processes, especially for issues like health and safety and security. If you have staff leaving or skills gaps, you must still meet the terms required by your insurance policy.

If any property is going to become unoccupied, your insurers should be notified. Cover restrictions and conditions are likely to apply and you may need to change any security requirements.

Taking out new insurance or changing a policy

Anyone taking out insurance has a legal requirement to make a ‘fair presentation of the risk’ to insurers.

You should inform your insurer if you’re actively considering closure or have decided to close. This applies when taking out new cover, renewing existing policies or making variations to a current policy.

You should be transparent about the process of closure and any changes to how you will manage risks during this period.

Managing any existing or known issues

You may have some pending or outstanding claims when you decide to close. Providing the claim met the policy wording requirement it will still be considered by your insurer, even if your organisation is closing or no longer exists.

However, the insurer may require a contact to manage the claim and access to relevant documentation.

You may want to consider settling all claims before closure, even if this exceeds what your insurance will cover. Always seek relevant professional advice in these situations.

Insolvency

Matters are more complex if your organisation is entering administration or insolvency. In this scenario you should seek professional advice.

Much can depend on whether the relevant insurance cover has been purchased before becoming insolvent and whether there are assets which could cover any excess charges.

Legal changes in 2016 made it easier for a third party to make claims directly against insurers without having to restore an insolvent company.

Last reviewed: 07 July 2023

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This page was last reviewed for accuracy on 07 July 2023

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