When purchasing an extended reporting endorsement or tail policy, this feature only allows for an additional time to report claims that occurred during the policy period and subsequent to the retroactive date in the policy. A typical errors and omissions insurance policy does not allow for changes to the existing E&O policy, including any change to either the specific or aggregate claims limit. This is important issue since the company may already have outstanding claims. If that is the case, then if the claims already filed against the policy exhaust the policy limits there would not be any limits available to pay for future claims. This is very significant issue. Since in this example, even if you purchased a tail policy, it would not be of any value since the limits would already be exhausted. A tail policy is usually insurance for the acquired company and supports an indemnification against future claims. Without this insurance, an individual might have to personally indemnify the new company for any causes of action in an E&O claim. We have been successful in negotiating refreshed limits or increased aggregate limits by purchasing and extended reporting endorsement in the surplus lines market. This is very important aspect of evaluating an acquisition candidate.
