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When added to an insurance policy by way of endorsement, tail coverage allows the insured to file a claim after a policy has expired or been canceled – essentially extending coverage for a stated period.
Let’s look at three things business owners need to know when considering tail coverage in a D&O liability policy.
#1: The Prior Claims Exclusion
This exclusion allows insurers to restrict or exclude coverage for claims or activities known prior to purchasing a D&O tail policy. It is important for policyholders to understand what this exclusion is and the importance of full disclosure. If information regarding prior claims is not disclosed during the application process (unintentional or otherwise), the insurer can retroactively cancel the policy due to misrepresentation in the original application.
#2: The Extended Reporting Period (ERP) vs. Tail Cover
The ERP is offered when a carrier is not willing to renew the cover, or is not willing to extend a fresh aggregate of limit if they are already paying out on a claim. This allows the insured to purchase an extension of his or her old policy for one year. In stark contrast, tail cover is typically triggered when there is an event, such as a merger or acquisition above the threshold contemplated by the original policy. The D&O policy then stops and the insured purchases tail cover, which is an extension of the current policy for the statute of limitations period (typically six years). Then the insured purchases a new policy for the date going forward.
#3: Purchase Coverage Sooner Rather Than Later
Whenever possible, underwriters recommend purchasing tail coverage before the D&O policy expires. In the event the business receives a new or unknown claim after the expiration or cancellation of the policy (but during the 60-day window), coverage may not be in effect for the claim — unless you have already purchased the ERP endorsement. Additionally, if claims are reported during the 60-day window, underwriting may restrict the number of years of tail coverage available to the business.
If you are a business in need of D&O insurance, or would like to learn more about D&O tail insurance, contact the experts at Oakwood D&O. We have over 15 years of experience specializing in all aspects of management liability, with an ardent focus on directors & officers liability insurance.
Get in touch – email Eli Solomon, CEO, at eli@oakwooddno.com or call (323) 686-7519.
You can also follow Oakwood D&O on LinkedIn.
