Standalone Tail Coverage/Extended Reporting Period Insurance

Tail coverage is needed when professionals and entities reach a point where there is no continuing operation but continued protection from the professional liability insurance (E&O, D&O, EPL, Cyber Risk) coverage is critical. This ongoing protection, needed for situations with a claims made policy, is called Standalone Tail Coverage or Extended Reporting Period Coverage (depending on how it is provided). The need can occur in any liability line of business that is written on a claims made basis, including:

A trigger event is usually the catalyst, and typically involves one of the following:

  • Purchase or sale of an operation with a buyer requirement for Tail coverage
  • Closing of a practice or retirement, with a need for continuing coverage
  • Liquidation or Bankruptcy
Coverage

Tail coverage only covers claims made against an insured during the period after the original claims made policy has expired for services provided prior to the original policy termination date. It does not cover any claims for services performed during the Tail period. As noted, it is used in special circumstances where an operation is being sold or shut down or a professional is retiring, and there will not be any ongoing services but continuing coverage is necessary.

The Options

There are two options: Standalone Tail and Extended Reporting Period Coverage (“ERP”). A Standalone Tail is not quite the same as an Extended Reporting Period although the application is the same.

Extended Reporting Period (“ERP”) An Extended Reporting Period (“ERP”) is a provision in most claims made insurance policies that allows the insured an option to extend the reporting period for claims beyond the end of the policy. Generally, the ERP does not increase the limits and the terms, including the cost for the extension, are built into the original policy.

Standalone Tail A Standalone Tail is a separate policy that is purchased to provide for an extended period to report claims that have occurred prior to the termination date of the expiring policy. The coverage is typically provided by an insurer who underwrites the risk at the time the Tail coverage is needed, and the limit(s), terms and costs are negotiated with the underwriter.

The terms for a Standalone Tail may be more advantageous to the insured versus an ERP. The ERP is typically built into the original policy without much thought given to its use at the time it is bound, so the terms may not be favorable. The Standalone Tail is negotiated at the time it is needed, and can be customized to the specific customer situation. In addition, the Standalone Tail coverage period may be longer than an ERP and the limits are new, not part of the original policy limit.

The Market

There is an active market for Standalone Tail coverage from a variety of specialty insurers. In some situations, Standalone Tail coverage can be difficult to negotiate because it is a one-time purchase and the underwriter must get comfortable that there is no adverse selection on the part of the insured, so expertise, underwriter relationships and a full, quality submission are critical.

The Process

We would recommend a conversation with a Tennant broker prior to starting the process. A thorough submission is necessary to get the best terms, including the prior application, loss experience and a description of the situation. The submission should include a clear description of the activities of the seller and details on the contemplated transaction or business exit.

Tennant Risk Services provides a wide range of markets for all types of specialty, unique and hard to place accounts, and is active in providing Tail coverage. Our goal is to provide the best combination of product, price and service to you. We will handle your accounts knowledgeably and efficiently, in turn saving you valuable time and money. Please let us know if we can be helpful in any way, and we look forward to working with you.

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Tennant Risk Services
124 LaSalle Road
West Hartford, CT 06107
Phone: (860) 519-1301
Fax: (860) 216-5845
E-Mail: info@tennant.com

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