A sunset clause on a liability policy is an endorsement that limits the coverage provided by the policy to a specific period of time, and can limit the reporting period of a claim. This means that if a policyholder is insured under a policy with a sunset clause and a claim is made for a loss that occurred during the policy period, but the claim is not reported until after the “sunset” date, the policy will not provide coverage for that claim.
For contractors, a sunset clause on a liability policy can be particularly problematic as construction projects can be complex and claims may not be discovered until long after the project is completed. For example, a defect in the construction work may not be discovered until several months or even years after the project is completed.
Therefore, contractors should approach a policy with a sunset clause with caution, and consider the potential risks and liabilities of the project before purchasing a policy. They should also consider purchasing an extended reporting period (ERP) or “tail coverage” option to provide coverage for claims that may arise after the policy period but were not reported during the policy period.
It’s important for contractors to discuss the sunset clause and ERP options with their insurance professional to ensure that they have the right coverage for their business. They should also carefully review the terms, conditions and exclusions of their insurance policy to understand the scope of coverage and any limitations.