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Extending Reporting Period

An Extended Reporting Period (ERP) is a time frame after a claims-made insurance policy expires during which claims can still be reported and covered, provided the incident occurred while the policy was active.

What is an Extended Reporting Period in Insurance?

In business insurance, an Extended Reporting Period (ERP) is crucial for claims-made policies, such as professional liability insurance. A claims-made policy covers claims made during the policy period, regardless of when the incident occurred. However, once the policy ends, new claims for incidents that happened during the policy period are typically not covered unless there is an ERP.

An ERP extends the window in which you can report a claim, ensuring that even if the policy has expired, incidents that happened while it was active are still covered. This can be especially important for businesses facing potential claims related to their professional services or products that may surface after the policy ends.

Example of an ERP

Imagine a consulting firm with a professional liability insurance policy that expires on December 31, 2023. In February 2024, a client discovers an error in the consulting firm’s advice given in November 2023, leading to financial loss. Without an ERP, the expired policy wouldn’t cover this claim. However, with an ERP, the consulting firm can report the claim and receive coverage because the incident occurred during the active period of the policy.

Key Components of Extended Reporting Period

1. Duration

The duration of an ERP can vary. Some policies offer a basic ERP for a short period (e.g., 30-60 days) for free, while extended periods (e.g., 1 year, 3 years, or even indefinitely) may be available for an additional premium.

2. Cost

The cost of purchasing an ERP can differ significantly based on the length of the extension and the risks associated with the business. Typically, the longer the ERP, the higher the cost. It’s essential to weigh the potential risks of claims being made after the policy ends against the cost of the ERP.

3. Scope of Coverage

The scope of coverage under an ERP remains the same as the original policy. This means that the type of incidents covered and the limits of liability are consistent with the expired policy. The ERP merely extends the time to report claims, not the coverage terms themselves.

Types of Extended Reporting Period

Basic Extended Reporting Period

Some claims-made policies include a basic ERP, which might extend the reporting period for a short time, typically 30 to 60 days, at no additional cost. This gives the policyholder a brief extension to report any claims made immediately after the policy ends.

Supplemental Extended Reporting Period

A supplemental ERP, also known as a tail coverage, is an optional add-on that extends the reporting period for a longer duration, such as one year, three years, or even indefinitely. This coverage is purchased separately and can be tailored to the business’s needs.

Automatic Extended Reporting Period

Some policies may include an automatic ERP that activates under specific conditions, such as if the insurer cancels or refuses to renew the policy. This automatic extension is usually for a limited period and is built into the policy terms.

Purchased Extended Reporting Period

This type of ERP is explicitly bought by the insured when they anticipate the need for a more extended reporting period beyond what is offered by the basic or automatic ERP. This purchase must be made before the original policy expires.

How Insurance Covers Extended Reporting Periods

When a business opts for an ERP, they are essentially ensuring continuity of coverage for incidents that occurred during the active policy period but are reported after the policy has expired. Here’s how insurance typically covers ERPs:

  • Claims-Made Basis: ERP applies to claims-made policies, where coverage is triggered by the reporting of a claim. This contrasts with occurrence policies, where coverage is triggered by the occurrence of an event within the policy period.
  • Coverage Consistency: The ERP maintains the original policy’s coverage terms, including the types of claims covered and the limits of liability. This ensures that the business remains protected under the same conditions as the original policy.
  • Retroactive Date: The ERP respects the retroactive date of the original policy, which is the date from which incidents are covered. Any claims arising from incidents before this date are not covered, even during the ERP.