Tail coverage is a provision that provides coverage for incidents that occurred while you had your policy, but a claim wasn't filed until after your policy's expiration date.
What is tail coverage?
Tail coverage is an endorsement, also called a rider, typically found within a claims-made policy, such as errors and omissions insurance (E&O) or directors and officers insurance (D&O). This policy endorsement is also known as an extended reporting period.
Tail coverage allows you to make claims for incidents that happened while you had your policy, even if your policy has since expired or been canceled.
In other words, if an incident occurred during the time you had the policy, but a claim wasn’t filed until after the policy had lapsed, you would still be protected for a certain period of time.
For example, let's say a client sues you over a coding error or a missed deadline. Your E&O tail coverage would provide protection even if you filed a claim after your policy expiration date. Without E&O tail coverage, you would be responsible for the legal defense or settlement costs, which could be significant.
Do you need tail coverage?
Tail coverage protects your tech business during periods of transition.
If you’re nearing retirement, thinking of closing your business, or planning to switch to a new policy, it’s important to have tail coverage in place beforehand. Think of it as a safety net.
Even if you retire or decide to close your business, you can still be held liable for the work you did in the past. Tail coverage will provide protection if a client or customer comes back at a later point with a lawsuit.
Prior acts coverage vs. tail coverage: What’s the difference?
While tail coverage protects you once a policy has expired, prior acts coverage is the opposite. It protects you from incidents that happened before you bought your policy, as long as you’ve maintained continuous coverage. It also is typically included in claims-made liability policies.
How long do you need tail coverage?
Claims-made policies typically include tail coverage.
However, the amount of time you have to report a claim after a policy's cancellation will vary, depending on the insurance company. You can add an endorsement to your policy, known as a supplemental extended reporting period (SERP), to increase the extended reporting period.
Tail coverage isn’t necessary for occurrence-based policies, since they offer coverage for all incidents that happened during the policy period. That’s why an occurrence-based policy is typically more expensive than a claims-made policy.
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