If you are buying or selling an agency, or simply trying to downsize, you need to know the answer to the question, “What is tail insurance?” This valuable coverage, which extends the reporting period for an agency’s Errors & Omissions policy, provides protection against problems that may be reported years after they actually occurred.
What Is Tail Insurance?
In simplest terms, tail coverage provides insurance against incidents or claims that are reported after an agency has been bought, sold, or downsized in a way that reduces client services. Policies range in length, but may be as long as 10 years. Without tail coverage, legal fees and damages incurred as the result of an incident of alleged professional liability become the responsibility of the agency owner.
Critical Elements of Tail Insurance
The following can be considered a short list of best practice guidelines as you develop a plan for tail insurance coverage.
As a buyer, require at least 3 years of tail coverage prior to purchase. Choose a policy with a bilateral tail, which allows you to use your coverage if either you or your carrier cancel a policy for reasons other than default.
As a seller, purchase the longest tail possible, to avoid being brought in to deal with claims resulting from events prior to the sale.
If you are closing or reducing services, purchase tail insurance to avoid personal liability and protect your assets.
What is tail insurance? The coverage you need to feel secure as you move on.