Do You Need Tail Coverage for an Occurrence Policy?
Understand professional liability coverage types to know when incidents are protected and if special extended reporting is ever needed.
Professional liability insurance protects individuals and businesses from financial losses resulting from claims of negligence, errors, or omissions in their professional services. Understanding the different structures of these insurance policies is important for ensuring adequate protection against potential liabilities.
Understanding Occurrence-Based Policies
An occurrence-based policy provides coverage for any incident that happens during the policy period, regardless of when the claim is reported. Coverage is determined by the date the professional service was rendered or the incident took place. Even if a claim is filed years after the policy has expired, the policy active when the incident occurred will respond.
This characteristic gives occurrence policies an “evergreen” quality, meaning they offer lasting protection for past acts. For instance, if a service was provided in 2020 while an occurrence policy was in effect, and a claim related to that service emerges in 2025, the 2020 policy would still cover it. The terms, conditions, and limits of liability from the policy in force at the time of the incident apply to the claim.
Occurrence-based policies are commonly used for general liability insurance, which covers bodily injury and property damage. While less frequent for some professional liability coverages, they are beneficial in situations where the long-term nature of potential claims is a significant consideration. Premiums for occurrence policies typically reflect this extended period of coverage, often being higher than those for claims-made policies in their initial years.
Understanding Tail Coverage
Tail coverage, also known as an Extended Reporting Period (ERP) endorsement, is a specific provision allowing claims to be reported after a policy has expired or been canceled. Its purpose is to cover incidents that occurred during the active period of a claims-made policy but were not reported until after the policy’s termination date.
It is purchased separately and added to the original policy, often incurring an additional premium. The cost typically ranges from 150% to 300% of the last annual premium of the expiring claims-made policy. The duration can vary, with options ranging from a few years to an unlimited period, depending on the insurer and policyholder needs.
Tail coverage becomes important when a professional retires, ceases operations, or switches claims-made insurers. It ensures that services performed during the active claims-made policy period remain covered for future claims. Tail coverage does not provide protection for incidents that occur after the original policy period ends; it solely extends the reporting period for past acts.
Understanding Claims-Made Policies
A claims-made policy provides coverage only if a claim is first made and reported during the policy period, or an extended reporting period. Both the incident and claim notification must occur within defined dates for coverage to be triggered.
This policy structure differs from occurrence-based policies, where only the incident date is relevant. If an incident occurred during the policy period but the claim was not reported until after the policy expired, there would be no coverage unless an Extended Reporting Period was in place. This creates a coverage “gap” if a policy is not renewed or replaced.
Claims-made policies typically include a “retroactive date,” a crucial element. This date establishes the earliest point from which incidents will be covered under the policy. Any incident occurring before this retroactive date will not be covered, even if the claim is reported during the active policy period. Premiums often start lower in the initial years but may increase over time as the period of covered past acts lengthens.
Why Tail Coverage Is Not Needed for Occurrence Policies
Tail coverage is designed to address the unique characteristics of claims-made insurance policies. It bridges the coverage gap that arises when a claims-made policy expires, allowing claims for past incidents to be reported. This stems directly from the claims-made trigger, which requires a claim to be reported while the policy is active.
In contrast, an occurrence-based policy inherently provides continuous coverage for incidents during its active period, regardless of when the claim is reported. The policy active at the time of the incident will always respond, even if the claim surfaces years later. This means there is no “reporting gap” requiring an Extended Reporting Period.
Therefore, purchasing tail coverage for an occurrence policy would be redundant and offer no additional benefit. The inherent nature of an occurrence policy, covering claims based on the incident date, already provides the long-term protection that tail coverage offers to claims-made policies. Tail coverage is solely relevant for claims-made policies and is not applicable to occurrence-based coverage.