In the last post we covered some of the basics of tail coverage, such as how it works, who needs to purchase it and some best practices for tail coverage insurance buyers. This post will explore the topic a little further and answer some common questions.
Errors and omissions (E&O) insurance protects a firm in the event a client should allege that an error or omission was made over the course of the relationship, which in turn caused the client a financial loss. In response to such claims, E&O coverage would pay for legal defenses and settlement costs up to the limits specified by the policy.
Once the relationship with the client has ended, it does not necessarily mean that E&O coverage is no longer needed. In fact, letting your E&O policy lapse even if you’re no longer working with clients could be a costly mistake. A firm can be held liable for errors and omissions in past jobs as long as time hasn't run out on the statute of limitations for that specific type of claim. Below is an example of a situation in which tail coverage would have prevented a firm from having to pay for an E&O claim.
Client, ABC Corp, hires Firm, X Agency, to do a project. As part of the contract ABC Corp requires X Agency to purchase E&O insurance because they do not already have coverage. Once the job has been completed, X Agency decides to let the policy lapse thinking that they no longer require coverage. Two years later, ABC Corp returns with a lawsuit, alleging that they were able to trace the cause of a financial loss to a specific omission made by X Agency during the course of the project. Because the E&O insurance policy lapsed after the work was completed, X Agency has no insurance coverage for the claim.
A new policy would not help in the above case, as it would only cover claims made after being reinstated. Once an E&O insurance policy is no longer in force, there is no coverage for a lawsuit resulting from a prior act, even though the policy was active when the error was made. Had the agency in the above example purchased tail coverage for their E&O policy, they may have saved themselves money in defense costs and settlements fees down the road.
How Much Tail Coverage Should I Buy?
One of the most commonly asked questions regarding tail coverage is how much coverage should be purchased. The simple answer is, as much as you can afford. There is no agency standard with regard to the number of years of coverage that can be purchased, and policy lengths can range anywhere from one year to indefinitely. The price of a tail coverage policy is typically a multiple of the current premium, so the cost will vary based on a number of factors. If you’re looking into purchasing tail coverage, consult with an insurance provider who specializes in tailored management, such as Axis Insurance Services, LLC.
About Axis Insurance Services
At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (201) 847-9175 to speak with one of our professionals.
