If you are planning to buy or sell, close or curtail operations of an agency, it’s important to understand what an insurance tail coverage definition is, and how it can affect you. While a standard Errors & Omissions policy will cover you for normal business operations, tail coverage can be critical for any of the situations listed above.
What Is Tail Coverage?
An insurance tail provides additional coverage for E & O claims made after your policy has expired. Claims made concerning events that occurred during the period when your policy was in force will still be covered if you have a tail in place. If you do not have tail coverage, you may be personally liable for claims like these.
How Does It Work?
Different situations call for different policy specifics, but as a rule, the following are good guidelines:
- Get the longest coverage period possible; policies may cover a period of up to 10 years.
- If you are buying an agency, make sure that the seller has purchased at least three years’ worth of tail coverage.
- Make sure the tail policy is bilateral, meaning that it can be used whether you or the carrier have cancelled the policy for any reason other than default.
- Consider tail coverage if you are reducing or eliminating services. This is especially valuable with regard to negligence claims.
Understanding insurance tail coverage definition, and choosing the policy that works best for your situation, helps you to protect yourself and your assets in the long term.