There are several reasons why an organization may choose to close a senior living community. Regardless of the specific reason for the closure, it is crucial to consider certain factors related to insurance.
Many insurance companies that provide property and general/professional liability policies for senior living communities are not willing to insure a vacant building. Moreover, property insurance policies often have vacancy provisions that significantly limit coverage if a building remains vacant for a specific period, typically 60 days. Therefore, it is crucial to inform the insurance company about the closure of a building and obtain new general liability and property policies with the necessary coverages if the current insurance company is unable to provide them.
Another crucial aspect to consider is the maintenance of the vacant building. The insurance company will require confirmation regarding the status of utilities, whether they will be kept on or shut off. Additionally, they will expect the building to be regularly checked and secured to prevent unauthorized entry. Vandals are often attracted to vacant buildings. Any damage may go unnoticed for a significant period, potentially resulting in substantial losses, particularly if it involves water damage. Implementing measures to safeguard the building from unauthorized entry, ensuring regular maintenance, and conducting inspections can effectively mitigate potential risks.
Most senior living communities have general/professional liability insurance that is written on a claims made coverage form. This means that all incidents must be reported during the policy period. If you are aware that a senior living community will be closing, it is crucial to review records and ensure that any incidents that may give rise to a claim are reported to the insurance company before canceling the claims made policy. Once the claims made policy is canceled, there will likely be no coverage for newly reported claims unless an Extended Reporting Period (ERP), also known as tail coverage, is purchased. An ERP can be quite expensive, typically ranging from 100% of the annual policy premium or higher. However, it provides an additional period, usually 1 to 3 years after the claims made policy is canceled, during which claims can still be reported and trigger coverage under the policy.
Even after the closure of a senior living community and the cancellation of all insurance policies, there are still financial obligations that may persist. If the general/professional liability policy had a deductible, you will still be responsible for paying the deductible when claims are closed. Workers’ compensation policies will undergo an audit at the end of the policy period or upon cancellation, and any additional premium resulting from the audit must be paid. Furthermore, if the workers’ compensation coverage was written on a loss-sensitive program, the financial responsibility can potentially continue for years. In the case of a retro plan, retrospective adjustments are made annually until all claims are closed or the policy aggregate or maximum is reached. If the workers’ compensation was on a large deductible program, the insurance company will continue to bill monthly for all payments made until all claims are closed or the deductible or maximum is reached. It is crucial to set aside sufficient funds to ensure the payment of these ongoing obligations.
Closing a senior living community is a significant decision, and along with other important considerations, there are numerous insurance factors to keep in mind. It is crucial to consult with insurance professionals who specialize in the senior living industry to effectively navigate these complexities. By addressing these considerations proactively, community owners can mitigate potential risks and ensure a seamless transition.
Check out our senior living practice to learn more ways to minimize your risk within your senior living organization.
