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									Extended Reporting Period
_______________________________________________
By Phyllis Van Wyhe, CPCU, CIC, CSP
www.insurancece.com

       The year following his father’s retirement, Austyn Andrews had two
       professional liability claims due to his own wrongful acts. The insurance
       carrier decided to non-renew and Austyn is having difficulty finding
       replacement coverage. He has asked his agent if there is any way to get an
       extension of his current coverage. He has heard about an Extended
       Reporting Provision and wants to know the details.

An Extended Reporting Provision in a claims-made policy simply extends the period of
time, beyond the expiration of the policy, during which a claim can be made against the
insured and reported to the company. In order for coverage to be activated under an
Extended Reporting Provision, the following conditions must be present.

       1. The wrongful act must have occurred during the time the policy was in
       force and after the retroactive date. There is no coverage for acts that
       occur during the Extended Reporting Period.

       2. The claim must be first made and reported during the Extended
       Reporting Period.

An Extended Reporting Period applies for only a limited period of time; with most
professional liability policies the period runs from 1 to 3 years and cannot be renewed. In
almost all cases, the purchase of the Extended Reporting Period does not reinstate limits;
the limits remaining from the last policy period will be available during the period
extended. Purchasing the Extended Reporting Period offered by the claims-made policy
is often referred to as “purchasing the tail.”



WHEN THE EXTENDED REPORTING PERIOD IS NECESSARY

There are three primary situations when an Extended Reporting Period may be necessary:

       When the Retroactive Date is Advanced

       Assume the insured is moving coverage from one insurance company to
       another and the new carrier will not honor the retro date on the existing
       policy. The new company is offering a retroactive date that is the same as
       the inception date of the new policy. In this case, the insured will lose
       coverage for wrongful acts that occurred between the original retroactive
       date and the new one.
       When the Policy is Cancelled or Non-renewed

       When a claims-made policy is cancelled or non-renewed and the insured
       does not replace the coverage, there will be no coverage for claims
       arising from wrongful acts that took place during the term of the policy,
       but are not reported by the last policy date. If such a claim is not made
       until after the policy is cancelled or non-renewed, there will be no
       coverage.

       When the Insured is Changing from a Claims-Made Policy to an
       Occurrence Contract

       There can also be problems when the insured switches from a claims-
       made policy to an occurrence policy. In this case, there will be no
       coverage for claims that result from wrongful acts that took place before
       the inception of the occurrence policy but are not made until the
       replacement occurrence policy is in force. While the occurrence policy
       may provide the needed coverage by endorsement, that is rather unusual.



COMPARING PROVISIONS OF EXTENDED REPORTING PERIODS

The terms of an Extended Reporting Provision are usually specified in the policy at the
time the contract is written and can vary significantly from one contract to

another. These provisions should be compared when the coverage is placed; they are not
negotiated at the time the insured needs to purchase the EPR. In some cases the insurance
company may be willing to negotiate some of the provisions of the ERP at the time the
policy is written.

There are four primary areas to compare Extended Reporting Provisions:

       1. The Duration of the ERP

       The insurance policy will specify the time period during which the ERP
       will run. Most professional liability contracts offer a one year tail, but
       occasionally it will be longer. Although it is unusual, some contracts offer
       a number of ERP options from which the insured can choose at the time
       the provision is activated.

       2. The Price of the ERP

       The cost of a policy’s ERP may be specified in the policy itself or listed
       on the declarations page. Generally a one year ERP on a professional
       liability contract will cost between 75 and 125% of the expiring policy’s
       annual premium. Some contracts state that the premium will be
       determined according to the company’s rules and rates at the time of
       purchase; this type of provision is not to the insured’s advantage.

       3. The Right To Purchase

       Some ERPs are referred to as “One-Way Tails” because they can only be
       purchased if the insurance company cancels the policy for other than non-
       payment of premium. By contrast, a “Two-Way Tail” can be activated if
       the insurer cancels, but is also available if the insured

       decides to cancel or non-renew the policy. The type of tail that is offered
       can vary from one company to another and also by line of

       business. The insured should always strive to find policy with a two-way
       tail because it offers the maximum number of options.

       4. The Time Allowed To Purchase

       Purchase of an ERP is only available for a very limited period of time.
       Some policies stipulate that the insured must activate the ERP by the

       date the policy terminates. Other contracts grant as much as 60 days to
       notify the company. The most common is a 10 to 30 day purchase
       window. The insured should expect to pay the premium, in full, at the time
       the ERP is activated or shortly thereafter.



A BASIC ERP (A SHORT TAIL)

Some policies extend a limited ERP at no charge. The coverage provided is similar to that
provided by the ERP that is purchased under the contract. The Basic ERP is limited,
usually to 30 or 60 days, and is provided at no charge. Occasionally the “short tail” will
be written on a one-way basis even though the tail that can be purchased under the policy
is a two-way tail. A short tail provides a limited Extended Reporting Period for the
insured who is not going to buy the full tail.



RUNOFF PROVISIONS

Some professional liability contracts offer special consideration to the professional who
is retiring or will no longer be offering professional services. These companies offer a
Runoff Provision rather than an ERP. The runoff provisions permit the insured to report
claims for a specified length of time in the future. In some cases these provisions are
written on an annually renewable basis with a decreasing premium. Other provisions are
offered with a lump sum premium and allow reporting of claims for an unlimited number
of years after the purchase.



THE ALTERNATIVES

Extended Reporting Provisions are policy provisions that extend the time during which a
claim can be reported under a claims-made policy. There are definitely occasions when
they are valuable to the insured, but at other times there are alternatives.

The insured will not need an ERP if the replacement claims-made policy provides full
prior acts coverage. Under this policy, you will remember, there would be no retroactive
date and it does not matter when the incident occurred.

Also, if the insured is moving coverage from a claims-made policy to an occurrence
policy, and the new policy will provide coverage for prior acts under what is called a
“nose endorsement,” that endorsement will provide coverage for incidents that occurred
before the inception of the policy.



This article is excerpted from the book Professional Liability: An Emerging Line, written by Phyllis Van
Wyhe, CPCU, CIC.

								
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