Claims Can Arrive Long After the Business Changes

A construction company shuts down in 2023. Three years later, a former customer sues over plumbing work performed in 2022 that allegedly caused major water damage. Elsewhere, a Chicago manufacturer buys a competitor in June, and in December former investors sue the acquired company’s old directors over disclosures made that March. The buyer’s D&O insurer answers that buying a company does not bring its history under the buyer’s policy.

Both cases turn on the same question: which policy covers conduct from before the business closed or sold? The answer depends mostly on whether that policy is occurrence-based or claims-made, and on what was done about coverage when the business ended.

Closing a Business Does Not End Its Liability

Under 805 ILCS 5/12.80, Illinois preserves remedies against a dissolved corporation for claims brought within five years after dissolution, and separate provisions govern LLCs. In a sale, the purchase agreement allocates liabilities between buyer and seller, but that allocation binds only the parties to the deal, not the plaintiff or the insurers.

Occurrence Policies Look to When the Damage Happened

Most commercial general liability policies respond to bodily injury or property damage that occurs during the policy period, even if the suit comes years later. If the contractor’s 2022 policy was in force when the water damage began, that insurer may owe a defense in 2026 despite the policy’s expiration and the company’s closure. The trigger is when the damage occurred, not when the work was done or the suit was filed, and completed-operations provisions and exclusions still apply.

Claims-Made Policies Look to When the Claim Arrives

Professional liability and D&O policies are usually claims-made, responding only to claims first made, and sometimes reported, during the policy period. A consulting firm that closes in 2023 and is first accused of negligence in 2025 may have no coverage under its expired policy, even though the work occurred while it was active. Illinois courts enforce these terms as written. In Southwest Disabilities Services & Support v. ProAssurance Specialty Insurance Co., 2018 IL App (1st) 171670, the court applied a claims-made-and-reported policy’s reporting requirement.

Tail Coverage, Runoff, and the Buyer’s Policy

For claims-made coverage, the protection is an extended reporting period, or tail, which extends the time to report claims about conduct that occurred while the policy was in force. In an acquisition, most D&O policies also convert to runoff under a change-in-control provision, covering only claims about earlier conduct for the rest of the policy period, and a purchased tail extends that window, often for six years. Without one, a claim first made the month after the target’s policy expires may fall outside every policy.

The buyer’s policy rarely fills the gap. D&O policies that automatically extend coverage to newly acquired subsidiaries usually cover only wrongful acts after the acquisition, so the March disclosures in the manufacturer’s case may fall outside it entirely. Deal documents often require someone to buy a tail, and a closing business is usually offered one by its broker. A promise or an offer is not proof of purchase; the policy, endorsements, and broker confirmation are.

Indemnification Promises Are a Separate Obligation

Purchase agreements commonly require the buyer to preserve former directors’ indemnification and advancement rights and to keep D&O coverage in place for them for several years. Under the Illinois Business Corporation Act, those rights in a corporation’s articles or bylaws generally survive a director’s departure and cannot be eliminated by a later amendment for past conduct. A buyer that promised six years of tail coverage and never bought it may face a contract claim from the former directors, even though no insurer has to pay.

When Shareholders Say the Price Was Too Low

Former shareholders may also sue, claiming misleading disclosures led them to accept too little. The D&O insurer may fund the defense and then refuse to contribute to a settlement under the bump-up exclusion, on the theory that insurance should not finance a higher purchase price. In Towers Watson & Co. v. National Union Fire Insurance Co., No. 24-1302 (4th Cir. May 28, 2025), the Fourth Circuit applied the exclusion to merger settlements totaling $90 million. Because these exclusions vary and many preserve defense costs, the exact wording and the settlement’s allocation decide how much the insurer owes.

The Records Outlast the Business

Old policies, broker correspondence, and project records can be the most valuable thing a closed business still has, because a former owner facing a lawsuit needs to identify which policy was in force when the damage occurred or the claim was made. Every potentially responsive historical insurer should receive prompt notice, and an expired policy does not excuse late notice of a newly discovered claim. For a business being sold, the work is easier before closing: confirming the target’s change-in-control terms, buying and documenting the required tail, and reading how the buyer’s policy treats acquired entities.

We help businesses, buyers, former owners, and directors locate historical insurance and evaluate coverage after a closing or acquisition. If your company closed, changed names, or was sold and a claim has surfaced, contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our insurance recovery services. Coverage depends on the policy wording, the facts, and applicable law. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.