By Floyd Sloat
A Sunset Clause relates to when a claim can be reported.
With a Sunset Clause there is a time limit on when a claim can be reported and considered for coverage. If you are not allowed to report a claim per the policy then there is no chance that coverage would apply regardless of when the occurrence happened. So if the policy has a 3 year Sunset Clause after three years no claims can be reported on the policy. Any damage that shows up after the three years would not be covered. Here is a sample exclusion.
In a traditional Occurrence Form policy there is no limitation on when a claim can be reported. For the policy to pay, it would still have to be a covered claim (based on the wording of the policy) but the claim could be made years after the fact of the occurrence itself. This is particularly important when the occurence may not be visible until years later such as in any new construction work.
In California the limitation for lawsuits on construction is 10 years so a 10 year sunset might seem acceptable. The trick with this is to know when the 10 years start. For condos the 10 years start after substantial completion of the project which means a certain number of units have to be sold before the 10 years start. It is not uncommon for a year or more to pass before the clock starts.
This means a 10 year Sunset Clause could run out before the 10 year statute of limitations runs out. If you are doing any type of new construction a Sunset Clause is not the best policy for you. It is essentialy like buying a Claims Made policy with an extended reporting period but is actually a step down since if you keep a Claims Made policy in force for 10 years the coverage goes back to the very first policy. With Sunset Clauses in the policies the earlier policies will start to fall away and leave no coverage in the earlier years.
The usual coverage is an Occurrence Form policy. Sunset Clauses, Manifestation Clauses and other exclusions simply take things away from the coverage.
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