Runoff Insurance: What Is It & Do We Need It?
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Runoff Insurance Def:
A provision in a claims-made policy stating that the insurer remains liable for claims caused by wrongful acts that took place under an expired or canceled policy, for a certain time period.
Runoff Insurance Explained
To understand runoff insurance you first need to understand the difference between a coverage trigger in an occurrence policy vs. a claims made policy.
Under an occurrence policy, the occurrence of injury or damage is the trigger; liability will be covered under that policy if the injury or damage occurred during the policy period.
Under a claims-made policy, the making of a claim triggers coverage. Coverage triggers serve to determine which liability policy in a series of policies covers a particular loss.
Types of Insurance Policies That Require Runoff Consideration:
For example, consider a policy written with a January 1, 2015-2016, term and a 5-year runoff provision. In this situation, coverage will apply under the runoff provision to all claims caused by wrongful acts committed during the January 1, 2015-2016, policy period that are made against the insured and reported to the insurer from January 1, 2016-2021 (i.e., the 5-year period immediately following the expiration of the January 1, 2015-2016, policy).
Although runoff insurance provisions function in a manner that is identical to extended reporting period (ERP) provisions, there are several differences. First, ERPs are generally written for only 1-year terms, whereas runoff provisions normally encompass multi-year time spans, often as long as 5 years. Second, while ERPs are most frequently purchased when an insured changes from one claims-made insurer to another, runoff provisions are generally used when one insured is acquired by or merges with another. In such instances, the acquired company buys a runoff provision that covers claims associated with wrongful acts that took place prior to the acquisition but are made against the acquired company after it has been acquired.
To discuss situations when your organization will need or may want runoff insurance in more detail contact an ALIGNED Insurance Advocate of connect with us at www.alignedinsuranceinc.com
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