Most Malpractice policies are written on a claims made and reported basis, which means all claims must be made against the policyholder and reported to the insurer during the policy period. Other than a mini-extended reporting period (usually for 60 days) there is no coverage for claims that arise after the policy has expired. To address this issue, insurers offer an Extended Reporting Period [“ERP’] or Tail which is essentially a time extension to report claims that arise from services performed BEFORE the policy expired, but become known to the policyholder after the policy termination date.
When might you need an Extended Reporting Period?
Because Claims-made policies don’t cover claims reported after your coverage has terminated, if your policy has lapsed, been cancelled or non-renewed and you do not have replacement coverage an ERP is the only way to guarantee coverage . Otherwise, if any claims are made against your firm after your policy ends, you may have to pay those claims as an out-of-pocket expense. Difficulties can arise if you replace coverage with a policy that has different terms and conditions, but services were performed before the replacement policy commenced and such services would have been covered by the prior policy. Similarly, if you or some other person at your firm was aware that an incident or circumstance might have the potential to give rise to a future claim, that prior knowledge could preclude coverage from the replacement insurer.
The right to purchase an Extended reporting Period -a One-Way or Two-Way Option?
Some policies provide an ERP only if the insurer cancels or non-renews your policy, or modifies your coverage. None is provided if you decide to cancel or non-renew your coverage. This type of ERP is referred to as a one-way option because it is provided only if the insurer acts. Other policies include a two-way option (like CPAGold™). That is, the policy provides an ERP if you or your insurer elects to cancel or non-renew your policy.
Automatic and Optional ERPs
Claims-made policies often include both short-term and long-term extended reporting periods. A short-term (or mini) tail is often provided automatically if the insurer cancels or non-renews your policy. It typically lasts for 30 or 60 days after your policy expires, but may be withdrawn if you replace coverage with the same or similar coverage.
Many insurers offer an optional long-term ERP for an additional premium. . If requested by the policyholder, a premium is charged and an endorsement is issued. A long-term ERP is known by a variety of titles. Depending on the policy, it may be called a Supplemental ERP, Optional ERP, Discovery Period, or simply Extended Reporting Period. An optional ERP is generally provided only if you request it in writing and pay the premium within a specified time period, such as 60 days after the policy expires.
In addition, there may be a variety of free extended reporting periods for retirement, death or disablement of the policyholder. These ERPs may require the policyholder to be an insured of the insurer for a period of “qualifying” years. For example, CPAGold™ requires the policyholder to be insured for at last three years with the program.
Example – CPAGold™ Claims-Made Policy
The claims-made CPAGold™ policy provides a convenient example of how ERPs may apply. The policy provides an automatic 60-day ERP and an optional (Supplemental) ERP with various possible periods of coverage. One or both ERPs are provided if the policy is cancelled or non-renewed. The policy doesn’t specify who must cancel or non-renew so the ERPs are two-way tails.
The claims-made CPAGold™ provides an ERP automatically if the policy is lapsed, cancelled or non-renewed as outlined above. This basic ERP lasts for 60 days from the end of the policy period. It gives the policyholder 60 days to report claims that result from services performed during the policy period (or early if there is prior acts coverage) that was reported to the insurer during the policy period or within 60 days thereafter. That is, if an incident occurred during the policy period, was reported to the insurer within 60 days after the policy expired, and the incident generates a claim, the claim should be covered if it is reported within the 60 day extension.
The Basic ERP also provides 60 days to report claims arising from incidents that weren’t reported to your insurer during the policy period. That is, if you forgot to notify the insurer or notification was delayed. If the incident generates a claim, that claim will be covered only if you report it to your insurer within 60 days from the date your policy expires.
The CPAGold™ provides an option to purchase a longer term ERP. The additional tail takes effect when your Basic ERP ends (or could supersede it). Its duration can be for a period of years or unlimited. If you wish to purchase the Optional ERP, you must notify your insurer in writing within 60 days after your policy expires and pay the premium .
If you purchase the Optional tail under the claims-made CPAGold™, your insurer will not reinstate your aggregate limit unless this is mandated by State law. This means that the policy aggregate limit will apply to claims reported during the optional ERP in addition to claims already reported during the policy term.
Read ERP Provisions Carefully
Extended reporting provisions vary widely from one policy to another. Note, like the CPAGold™ described above, that most claims-made policies do not provide a new aggregate limit under an extended reporting period. Moreover, few policies provide an unlimited time period to report claims. Most ERPs apply for a specified time period, such as five or six years.
- The ERP is a time extension in which to report claims.
- The ERP may be subject to a retro date (i.e. there is no coverage for services performed before a specified date)
- Because professional liability policies are usually written on a claims made basis, if the ERP is not requested there will be no coverage until a replacement policy is purchased. • Usually the ERP does not “refresh” the limit of coverage.
- Normally, the ERP must be requested and paid for within 60 days of the expiration of the policy period.
- The ERP usually ends at a predetermined time (unless “unlimited”).
Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or firstname.lastname@example.org