Protecting yourself from claims related to past work is just as important as covering future work. One key is an extended reporting endorsement (ERE), more commonly referred to as tail coverage. Tail coverage can be a vital safety net when your regular policy is no longer active. Here’s an in-depth look at how tail coverage works, when you might need it, and why it’s important.
What is Tail Coverage?
Tail coverage is an endorsement or add-on to your claims-made legal malpractice insurance policy that allows you to report claims after the policy has ended. While a regular claims-made policy only covers claims reported during the active policy period, tail coverage extends the window during which claims can be made, beyond the policy expiration date.
Although tail coverage allows claims to continue to be made after your policy expires, it’s important to note that tail coverage only applies to incidents (errors, omissions or wrongful acts) that occurred during the policy period, not after it expired. So, incidents that occur while tail coverage is in effect are not covered by the ERE.
When Do You Need Tail Coverage?
Some of the most common situations in which tail coverage is purchased include:
- Retiring or leaving the profession: If you’re winding down your career and will no longer be providing professional services, tail coverage can protect you from claims arising from work you did while insured.
- Switching insurance providers or policies: If you’re switching from one policy to another, especially when there’s a gap between the two policies or you’re changing insurers, tail coverage may be necessary to ensure continuous protection.
- Your policy is canceled or non-renewed: Whether your policy is canceled due to a business decision, financial issues or a decision by the insurer, tail coverage can ensure you still have a window to report claims for work done under the old policy.
You can see other examples in “How LPL Works When You Leave Your Firm.”
How Does Tail Coverage Work?
Since tail coverage allows you to extend the reporting window for an expired policy, you typically have the option to purchase tail coverage when your policy ends. Coverage of claims for incidents that occurred during an active policy period, but made after your policy expires, are dependent on whether tail coverage exists (if you do not have continuous coverage under a new policy that provides full prior acts with no gaps in coverage.
For example, let’s say your policy ends Dec. 31, 2024, and a claim is made on Feb. 1, 2025, for an incident that occurred in October 2024. Without tail coverage, the claim would not be covered because it was reported after the policy expired, and no new policy with continuous coverage existed. With tail coverage, the claim would be covered because although the policy itself is no longer in effect, the incident occurred while your policy was active and it was reported within the tail coverage window.
How Long Does Tail Coverage Last?
The duration of tail coverage can vary based on the insurer, profession and the policyholder’s needs. Common options include short-term for as little as 12 months, long-term for 3 or 5 years, and unlimited coverage which allows claims to be reported indefinitely. While unlimited is the most comprehensive form of tail coverage, it is the most expensive and may include restrictive conditions for purchase.
What is the Cost of Tail Coverage?
Tail coverage cost is based on a percentage of your most recent premium, often 150% to 350%. Despite the cost, tail coverage can be a wise investment, especially when the alternative is facing expensive litigation without insurance protection. Like policy premiums, the cost depends on several factors like policy limits and claims history, as well as length of tail coverage.
Tail Coverage vs. Prior Acts Coverage: What’s the Difference?
While tail coverage and prior acts coverage are both means to prevent coverage gaps, they are very different.
Prior acts coverage protects you against claims for services provided before your current policy started. It essentially ensures your new policy covers work done in the past.
Tail coverage extends the time claims may be reported for incidents after a policy period has ended (assuming incidents occurred during the time that policy was active).
Key Considerations for Purchasing Tail Coverage
Assess your risk exposure and look at your past work to determine how likely it is that a claim could arise later. While the cost of tail coverage can be steep, consider the financial impact of a single lawsuit. If you’re a high risk for a claim, tail coverage could save you from a massive out-of-pocket expense.
Tail coverage is an important safeguard for lawyers. If there’s any risk that claims could arise from your past services after your professional liability insurance expires, tail coverage can provide peace of mind and financial protection.
While it might seem like an extra cost, the benefit of having a safety net for delayed claims far outweighs the risk of facing an uncovered lawsuit. Tail coverage ensures that even if you retire, switch careers, or move on to new ventures, your past work remains protected.
As always, if you have further questions or think you might need this coverage, contact us today!
Author
Laura joined OAMIC in 2020 with more than 10 years of experience in communications and marketing. Immediately prior to joining OAMIC, Laura worked for a statewide legal association, at which she gained an in-depth understanding of the needs of lawyers across the state and how to help address the challenges they face as they navigate their careers.