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Errors and Omissions: What You Need to Know About "Tail Coverage"

Tail Coverage, also known as Extended Reporting Coverage (ERP), is an important type of insurance add-on for an agency’s Errors and Omissions (E&O) policy. It’s especially useful when buying from a firm, selling or closing down an agency. Tail Insurance allows the purchaser to continue to cover E&O claims after the policy has expired. This does not extend the coverage period, but rather gives the agency more time to report an incident or claim as it arises further down the road.

How Does Tail Coverage Work?

The definition of “tail” provides a time period in which the insured retains coverage for Errors & Omissions claims resulting from professional services that were provided subsequent to the retroactive date listed in the policy and prior to the expiration date. Without this coverage, the legal defense costs and damages for professional liability claims made after the policy expires or is canceled are the responsibility of the agency owner.

Who Needs Tail Coverage?

Here is an example of a situation in which tail coverage is needed:

John, an agency owner, decides to put his agency up for sale. He finds an interested buyer, Bill, who requires a tail coverage endorsement with a length of three years minimum. John’s current policy only allows for a 12-month endorsement, so he finds he needs to locate a new carrier willing to extend the policy terms for the additional coverage. Without this amount of tail coverage, John will not be able to sell his agency.

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.

by Thomas Barrett, VP Commercial Sales

This blog was originally published on June 5, 2009. As of April 17, 2018, it has been updated.

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