Tail Coverage Insurance? What it means.

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:

1. 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.
2. Tail coverage applies for a limited time period, generally 1 year.
3. 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