What is Tail Coverage on a Claims Made Professional Indemnity Policy?

Tail Coverage

• Tail coverage in claims-made professional indemnity insurance is a term used in the insurance industry to refer to an extension of coverage provided to the insured under a claims-made professional indemnity policy.
• When a claims-made policy is cancelled or not renewed, the policyholder will lose coverage for any future claims that are made. This is because claims-made policies only cover claims made during the policy period. It means that if a claim is made after the policy has ended, there is no coverage available.
• Tail coverage in claims-made professional indemnity insurance provides an extension of coverage that allows policyholders to file claims for incidents that occurred during the policy period. However, they were not reported until after the policy had ended. This means that even if a policyholder switches insurance carriers or retires, they will still be protected from claims related to incidents that occurred during the policy period.

Importance of Tail Coverage

Tail coverage in claims-made professional indemnity insurance is essential because claims-made policies only cover claims that are made during the policy period. If someone is not insured under tail coverage, then it may leave him without insurance coverage for any claims that are made after the policy has ended.

How Does Tail Coverage Work?

• Tail coverage in claims-made professional indemnity insurance is typically purchased as an endorsement of a claims-made policy. The endorsement extends the reporting period for a specified amount of time after the policy has ended. This reporting period can range from one to five years, depending on the policy.
• During this extended reporting period, the policyholder can file claims for incidents that occurred during the policy period but were not reported until after the policy had ended. However, it's important to note that tail coverage only applies to claims arising from incidents that occurred during the policy period. It does not include the incidents that occur after the policy has ended.

Case Study

• John is a freelance graphic designer who specializes in creating logos and branding materials for small businesses. He has a PI insurance policy with a claims-made coverage form. It means that the policy will only cover claims made against him during the policy period.
• One day, John decides to retire and close his business. However, he realizes that he could still be liable for any claims made against him for work he completed during his career. He has already cancelled his professional indemnity policy, so he decides to purchase tail coverage.
• Tail coverage in claims-made professional indemnity insurance, also known as an extended reporting period endorsement, is an optional feature that can be added to a claims-made PI insurance policy. It provides coverage for claims made against the policyholder after the policy has expired.
• John purchases tail coverage for three years after his policy expires. This means that if any claims are made against him for work he completed during his career as a graphic designer, he will still be covered, even though he is no longer actively working or insured.
• Without tail coverage, John would be exposed to potential lawsuits and damages for any claims made after his policy expired. This includes the work he completed while he was insured. Tail coverage provides him with peace of mind and financial protection in case any claims arise after he retires.

Conclusion

Tail coverage in claims-made professional indemnity insurance is a critical component. It provides an extension of coverage that protects policyholders from claims related to incidents that occurred during the policy period but were not reported until after the policy had ended. If someone has a claims-made policy, it is essential to consider purchasing tail coverage to ensure protection from future claims, even if they retire or switch insurance carriers.