Professional liability policies for insurance professionals are typically written on either a claims-made or a claims-made and reported basis. These policies provide coverage for long-tail lines of insurance because a negligent act or omission may take place today, but harm arising from that act or omission may not be discovered or a claim made against the insured for a considerable period of time thereafter.
A pure claims made policy responds to claims made during the policy period provided the covered act occurred after the retroactive date. A claims made and reported form responds only if the claim is reported to the carrier in the same policy year the claim is received.
Both types have extended reported period (ERP) provisions, also known as tail coverage. However, depending on the policy, the ERPs are triggered at different points in time. As agencies change hands, merge or close shop completely, it is important for agency owners to understand the different limitations.
In a claims made form, the basic or automatic ERP is triggered if or when the policy is cancelled, whether by the insured or the insurance carrier. However, when coverage is written on a claims made and reported basis, the ERP is triggered at the end of every policy period because the claim must be reported in the same policy year it is received by the insured.
Whatever event triggers the ERP, the insured must be polled to inquire whether or not there are claims that require reporting to the insurance carrier. If a claim that should be filed is not, the insured could be penalized through severe coverage restrictions or the outright denial of coverage.
An ERP allows the insured additional time beyond the end of the policy period to submit a claim. Policy language may allow the insured up to an additional 30 or 60 days beyond the expiration of the policy period to submit the claim. A claim submitted during the ERP is treated as if it was submitted on the last day of the policy period.
In addition to the automatic ERP provisions in the policy language, most claims-made policy forms have a provision extending the option to purchase various levels of ERP or tail coverage. Typically, the range runs from one to 10 years and some even have an unlimited extended reporting period option.
About the Author
Amanda Juratovic is assistant vice president of errors & omissions operations for the Big “I” Professional Liability Program. Learn more at independentagent.com/EO.