Add a Tail Onto E&O Policies

tail policy

Some business decisions may lead to the canceling of the Errors and Omissions (E&O) insurance policy. This may be due to buying or selling a firm, closing down a business, or a number of other reasons. This leads to the insurance company no longer having any part in that business’s lawsuits. If someone were to make a claim against the business, then the business itself would need to cover the legal fees involved, even if the lawsuit entails something that happened during the coverage period. This is where a tail policy can come in handy.

What Is Tail Coverage?

In the aforementioned example, the insurance company immediately became uninvolved with the business as soon as the E&O policy was canceled. Any claims made against the business, no matter when the actions occurred, are now fully under the responsibility of the business. However, if the business acquires a tail policy, or Extended Reporting Coverage (ERP), after they cancel their insurance plan, this creates an added length of involvement. If a business has a tail coverage policy, the insurance company will continue to cover the finances involved in lawsuits, as long as the claim itself involves something that happened during the full coverage period. The amount of time which the tail policy covers depends on the company and specific plan, from only a year or two for a cheaper price to a lifetime for a larger fee.

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