Tail coverage insurance? What it means for your business.
According to the International Risk Management Institute (IMRI), tail coverage insurance is “a provision found within a claims-made policy that permits an insured to report claims that are made against the insured after a policy has expired or been canceled, if the wrongful act that gave rise to the claim took place during the expired/canceled policy.”1
It is notable that a tail coverage provision typically requires an additional premium from the insured party. However, some policies will include limited (i.e. 60-90 days post expiration) automatic extended reporting periods for no additional premium.
Tail Coverage Insurance: The Fine Print
IMRI provides the following example of how tail coverage insurance works. “Assume that a claims-made policy with January 1, 2015-2016, term contains tail coverage with a term of January 1, 2016-2017. Also assume that the insured did not renew the policy when it expired on January 1, 2016.”2
Under a tail coverage provision, “the insured will be able to report claims to the insurer during the January 1, 2016-2017 period of tail coverage, provided the claim resulted from a wrongful act that took place during the expired January 1, 2015-2016 policy term.”3
3 Key Features
When considering tail coverage as part of your business insurance package, remember that it is similar to run-off insurance and/or used interchangeably with extended reporting period provisions. Be aware that:
- Tail “coverage applies only if the wrongful act giving rise to the reported claim took place during the expired/canceled policy period. Thus, there is no tail coverage is available for wrongful acts if committed during the period of tail coverage.
- Tail coverage applies for a limited time period, generally 1 year.
- Purchasing tail coverage for a specific time period does not reinstate the policy’s aggregate limit of liability.”4
1, 2, 3, 4 IMRI.com