SELLING, BUYING, OR MERGING AN AGENCY?
You Need Tail Coverage
Tail coverage, also called an extended reporting period (ERP), is an endorsement to your E&O policy that extends the period in which you can report claims. It will cover business written between the retroactive date and the end of the policy if the claims are reported during the tail period. If you don’t purchase a tail, all coverage ceases when the policy is canceled or the term expires.
SELLING YOUR AGENCY?
- There’s a limited amount of time to purchase tail coverage, typically 60 days. You will only have one opportunity to purchase a tail and can’t add additional years later.
- Tail rates are typically defined in the E&O policy form. Review the pricing and consider this in your sale price.
- The tail premium is fully earned and must be paid in full before the coverage will be put in place. If you need proof of tail at closing, allow sufficient time to get the payment to the carrier and for processing the endorsement.
- There may be separate tail rates and provisions to consider if you have additional coverages in place in conjunction with your E&O, like EPLI or Cyber Liability. Review this carefully.
BUYING AN AGENCY?
- Require the seller to purchase tail coverage to avoid picking up liability for the business written prior to the purchase. Protect your agency by requiring a long tail period.
- Check your E&O policy! While most policies provide some automatic coverage, this is generally limited to 30-90 days after purchase. Underwriting review is required to cover the purchase beyond this period.
MERGING WITH ANOTHER AGENCY?
- Check the E&O policies for both entities to determine their provisions related to mergers. You may have a short window of automatic coverage or the carrier may require underwriting review before any coverage goes into effect.
- Ask the E&O carrier if prior acts can be maintained for both entities under one E&O policy. However, consider purchasing tail coverage for the non-surviving entity.
Questions? Please reach out to E&O Risk Management Specialist
Tabitha DeGirolano, RPLU at tabitha.degirolano@uticanational.com.