Explaining How Tail Coverage Works
When you’re looking to find a professional insurance policy, or Errors and Omissions (E&O), you may see mentions of “tail coverage” or Extended Reporting Coverage (ERP). What is tail coverage? It can be a vital part of E&O if you plan on canceling the policy, whether that’s due to closing down, selling or buying an agency or firm, or any number of reasons you’d need to stop insurance coverage. When you have tail coverage, the insurance company can continue to cover claims that fit under the E&O policy you previously had. This is, however, only if the claims are towards actions that happened during the full coverage period.
An Example of How Tail Coverage Works
If you’re still wondering, “What is tail coverage?” here’s an example: A business acquires E&O coverage for the entirety of 2019. Once the year ends, though, they cancel the policy. At this point, they decide to purchase tail coverage that extends for a year. During 2020, a client makes a claim against the business regarding an act of malpractice that happened in the summer of 2019. Without tail coverage, the business would have to handle the claim all themselves, but, since they purchased tail coverage for a year, the insurance company is able to handle the fees involved in the lawsuit.
However, if a claim were made for an action that happened during 2020, the insurance company would not be able to cover it, even with tail coverage.