What is an Extended Reporting Period?

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Many claims-made liability policies contain an option to purchase an extended reporting period (ERP). If you choose this option, your policy will cover claims you report to your insurer during a specified time period after your policy has expired. An extended reporting period is often referred to as a "tail" or "tail coverage."

When You Might Need an ERP

A claims-made policy covers claims made against you or another an insured during the policy period.

It does not cover claims filed after the policy has terminated. Thus, coverage gaps may occur if your claims-made coverage is cancelled or non-renewed.

Problems can also arise if claims-made coverage is replaced with an occurrence policy. For example, suppose that you purchase a one-year claims-made general liability policy with an inception date of June 1, 2016. Your insurer cancels your policy on March 31, 2017 and replaces it with an occurrence policy.

On May 1, 2017 you receive notice that a claim has been filed against you for bodily injury that took place on September 1, 2016. The claim was not made during the term of your claims-made policy. Consequently, that policy will not cover the claim. Your new occurrence policy will not cover the claim either because the injury occurred before that policy took effect.

Types of ERPs

An ERP may be one-way or two-way. A one-way tail is an ERP that is provided if the insurer cancels or non-renews your policy, or rewrites your coverage under an occurrence policy.

A tail-way tail is an ERP that is provided if you or your insurer cancel or non-renew your policy.

Claims-made policies often include more than one type of extended reporting period. Many provide short-term tail coverage if the insurer cancels or non-renews your policy. This coverage is typically provided automatically and free of charge.

It may be called a Basic ERP.

Some policies include an option to purchase broader coverage via an endorsement. This added coverage may be called a Supplemental (or Optional) ERP. An optional ERP is generally provided only if you request it in writing within a specified time period (such as 60 days) after the policy expires. You must also pay an additional premium.

Example - ISO Claims-Made Policy

The claims-made version of the ISO general liability policy provides an example of how ERPs apply. This policy provides an automatic (Basic) ERP and an optional (Supplemental) ERP. An ERP is available if the policy is:

  • Cancelled or not renewed The policy doesn't state who must cancel or non-renew. Presumably, the ERP is provided whether the policyholder or the insurer initiates the cancellation or non-renewal.
  • Replaced by the insurer with an occurrence policy; or
  • Replaced by the insurer with another claims-made policy if the replacement policy contains a retroactive date that is earlier than the one in the previous policy.

Basic ERP

If the policy is cancelled, non-renewed or replaced as outlined above, the Basic ERP applies automatically. The policyholder receives a five-year extension for reporting claims that result from an occurrence or offense that was reported to the insurer during the policy period.

That is, if the insurer is notified of an incident during the policy period, and the incident generates claims, those claims are covered if they are reported within the five-year extension. The claims must seek damages for bodily injury, property damage or personal and advertising injury.

For example, suppose you are insured under a claims-made liability policy. A slip-and-fall incident occurs during the term of your policy. You report the incident to your insurer on the day it takes place. When your policy expires, your insurer replaces it with an occurrence policy. If a claim is subsequently filed against you due to the slip-and-fall incident, the claim should be covered by your Basic ERP if you report it to your insurer within five years of the date your claims-made policy expired.

The Basic ERP also provides 60 days to report claims arising from occurrences or offenses that weren't reported to your insurer during the policy period.

For example, suppose that a second slip-and-fall incident occurred during the term of your claims-made policy. Unfortunately, you forgot to notify your insurer. If the second slip-and-fall 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.

Supplemental ERP

The claims-made ISO form provides an option to purchase a Supplemental ERP.  The Supplemental tail takes effect when your Basic ERP ends. Its duration is unlimited. If you wish to purchase the Supplemental ERP, you must notify your insurer in writing within 60 days after your policy expires.

If you purchase the Supplemental tail under the claims-made ISO policy, your insurer will reinstate your general aggregate limit. In other words, a new General Aggregate limit will apply to claims reported during the Supplemental ERP.

Provisions Vary

Extended reporting provisions vary widely from one policy to another. Many are not as generous as the ISO form. 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 Supplemental ERP's apply for a specified time period, such as five or ten years.