If you’ve been insuring business clients for long, it’s likely you’ve come across the issue of bankruptcy and specifically how a bankruptcy can affect one’s business insurance. Just because a business owner is contemplating or is currently in a bankruptcy does not necessarily mean the business has been badly managed. Changes in the economy and lots of other factors can affect business income. Your job as an agent is advising your client on how a bankruptcy will affect their insurance coverage.
Having the assets available to pay creditors is a vital concern of someone facing bankruptcy, whether it is a Chapter 11 or Chapter 7 bankruptcy. Additionally, a bankruptcy filing does not negate an organization’s requirement to maintain compulsory insurance coverage. All federal and state insurance requirements are still in force, including the requirements to carry auto liability insurance and in most cases, workers’ compensation insurance. It may also be necessary for a business undergoing bankruptcy to maintain liability and property insurance to fulfill contracts with vendors, lenders or other parties. Business contracts may contain wording that mandates a specific insurance coverage.
Another issue a business owner may face when filing bankruptcy is policy cancellation by the insurer. The insurer’s company guidelines may mandate that a cancellation notice be issued in the event of bankruptcy. That may seem harsh on the part of the insurer, but they have to consider whether the business will be able to pay any upcoming premiums due, keep risk management practices in place, or properly maintain equipment.
Bankruptcy is a bump in the road that many businesses face and many can overcome in time. Your job is to give your client the best insurance advice available while they go through this difficult time in the course of their business.
