The Facts About Tail Insurance Coverage
Tail insurance coverage is a good provision to have that can help keep you from paying out-of-pocket even if your policy has expired. This form of coverage allows you to file a claim after your policy has expired for acts that occurred during the time when your policy was still in effect. As a result, the policyholder will usually have to pay an extra premium or additional fee for tail coverage, which can be valid for up to one year.
How Tail Coverage Works
Tail insurance coverage is the same as an extended reporting period, and it may also be referred to the same way. Tail coverage is the attorney’s exposure for any claims that come about from work performed during the time when a policy is in effect. Since the actual claim may not be made for years after the work is performed. The exposure is also referred to as tail exposure, since it can trail a lawyer the same way that a tail trails an animal. Tail coverage is often referred to as coverage for the exposure which is provided under an Extended Reporting Period.
The Basics of an Extended Report Period
An Extended Report Period or ERP is a claims-made policy that prolongs the period that you have coverage after the expiration date. During that time, a claim can be made against you and reported to the company. For coverage to remain active under an Extended Reporting Provision, the following must occur.
- A wrongful act had to occur during the time the insurance policy was in effect and after the expiration date. There is no coverage for any wrongful acts that happen during the extended reporting period.
- The claim must first be made and reported during the extended reporting period.
An ERP applies for only a limited time, with most professional liability insurance policies that time is between 1 and 3 years. In most cases, when you purchase an ERP, it doesn’t reinstate limits. The limits that remain from your former policy period are available during the extended period. Buying an ERP that is offered by a claims-made policy is usually referred to as “purchasing the tail.”
The Four Primary Areas to Compare Extended Reporting Provisions
There are four things to consider when it comes to purchasing an ERP.
The Duration of the ERP
The policy will specify the time that the ERP will be in effect. Most offer a one-year tail while others may be longer.
The Price of the ERP
The cost of an ERP may be specified in the policy or listed on the page of declarations. Usually, a one-year ERP will cost between 75 to 125% of the policy’s annual premium.
The Right to Purchase
This refers to one-way and two-way tails. The type of tail that is offered will vary from one company to another and by the type of business involved. The insured should strive to find a policy with a two-way tail because it will provide the most options.
The Time Allowed to Purchase
You are only allowed to purchase an ERP for a limited amount of time. Some policies say that the insured must buy an ERP by the date that their policy terminates. Others will provide you with a 30-60-day period afterward where you can purchase an ERP once your policy has expired.
The Different Types of ERPs
An extended reporting period may be either one-way or two-way. A one-way tail insurance policy is an ERP that you receive if the insurer cancels or doesn’t renew your policy, or if they rewrite your coverage under an occurrence policy.
A two-way tail is an ERP that you receive if you or your insurer cancels or doesn’t renew your policy.
A claims-made policy will usually include more than one type of ERP. Most will offer a short-term tail policy if the insurer cancels or doesn’t renew your policy. This type of coverage is often provided to you standard and free of charge. It is often referred to as a Basic ERP.
There are some insurance policies that will have the option to purchase a broader range of coverage under an endorsement. This additional coverage is often known as a Supplemental ERP. It is provided only by request, and that request must be in writing. It should also be received within a specific time, such as 60 days after the policy expires. You will also need to pay an additional premium for this coverage.
While filling out a claims-made ISO form, you will have the opportunity to purchase a Supplement ERP. This supplement tail will take effect at the time when your Basic ERP ends, and the duration of this policy is unlimited. If you are interested in purchasing a supplemental ERP, you will need to get in touch with your insurance provider in writing within 60 days of the date that your policy expires.
To learn more about tail insurance coverage, contact the experts at demontinsurance.com at (850) 942-7760. Our licensed insurance experts will be happy to answer any questions you have.