Discontinuing part of your business, whether it’s shutting down operations or discontinuing a product line, can leave you exposed to several risks. Even after you’ve shut your doors, liabilities persist. Here’s what you need to consider:
Product Liability Doesn’t End with Your Business
If you’ve ever produced a product that’s still in circulation, you remain liable for any injury or damage caused by it. Small businesses often overlook this and assume their liability ends with their business closure, which isn’t the case.
Discontinued Operations Insurance
Most commercial general liability (CGL) policies don’t cover claims arising after your business has closed. This is why securing a discontinued operations insurance policy is crucial. This specialized coverage protects against lawsuits that may arise long after your business has ceased operations.
Key Risk Mitigation Strategies
- Run-off Infrastructure: Have a system in place to handle claims after discontinuing operations. This can include maintaining solid business records of all products manufactured, sold, or distributed.
- Product Recall Systems: Ensure you have a system for customers to report issues with discontinued products.
- Severance Packages and Layoffs: When discontinuing part of your business, make sure employees sign separation agreements, and comply with regulations like the Older Workers Benefit Protection Act and the WARN Act.
Personnel Liability During Layoffs
When discontinuing a product or closing your business, you may face legal complications related to laying off employees. Offering severance packages, job search assistance, and avoiding false accusations during layoffs can help mitigate this risk.
The process of winding down a business can be challenging, but ensuring that you’re covered for future claims and managing employee separations appropriately will make a big difference. If you’re planning on closing or scaling down operations, reach out to McHugh Insurance Group at 302-299-9199 for guidance.