Malpractice insurance has never come across as a "fun" topic, so I will start with a bit of humor (albeit strained) and then proceed to the meat of the subject. "Tail" is one of those words in English that comes with numerous meanings, including some slang definitions. It also can function as a noun, a verb, or an adjective. I won't go into all the permutations the Internet offered me for the definition or meaning of "tail," as it would take up more space than allotted for this article.
I only mention this because when I first heard the term used, I wondered about its derivation. Did the reference come from the fact that you purchased it at the "tail end" of the policy? Did it come from the fact that you purchased it at the "tail-end" of your career? Did it come from the fact that you purchased it to cover your "tail"? I never found the answer and over 50 years later, I still don't know for sure. I have, however, concluded that it makes no difference, so I stopped wondering about it years ago. Out of curiosity, I asked Google about that when I started writing this article. I learned that Google does not know either. The bottom line, however, remains that whatever you call it and whatever that reference means, you should make sure to explore it with your insurance broker. Remember, the funds you save may be your own.
When I started to practice law, insurance companies wrote malpractice or errors and omission policies using either a "claims-made" or an "occurrence" structure.
Before discussing the need for tail coverage, it helps to understand the difference between a claims-made and an occurrence-based professional liability insurance policy. A claims-made policy covers claims made and reported during the policy term, regardless of when the alleged error or omission occurred. An occurrence policy covers claims arising from incidents occurring during the policy period, regardless of when the claim is made or reported. For example, if an attorney makes a mistake in drafting a contract in 2010, and the client sues the attorney in 2020, a claims-made policy would cover the claim only if the policy was active in 2020. Significantly, the carrier would cover the claim even if the policy did not exist in 2010, as long as the retroactive date for the policy was before the alleged mistake. An occurrence policy would cover the claim if the policy were active in 2010, even if it has since lapsed.
Claims-made policies usually cost less and offer more flexibility than occurrence policies, especially for new attorneys or those who change their practice area frequently. A claims-made policy can also more easily adjust to reflect changes in the legal environment, such as new laws or regulations affecting the attorney's liability exposure. The main disadvantage of a claims-made policy is that it requires that you maintain continuous coverage and does not cover claims made after the policy ends unless the attorney purchases tail coverage or extends the reporting period. A claims-made policy also has a retroactive date, which is the earliest date from which the policy covers prior acts. The policy will not cover acts occurring before the retroactive date, but you can usually get an earlier retroactive date (expect that to increase your premium).
Occurrence policies provide permanent coverage for acts that occurred during the policy term, regardless of when the claim is made or reported. An occurrence policy does not require tail coverage or extensions to the reporting period and has no retroactive date. Occurrence policies, however, do not cover acts before the policy's inception, even if reported during the policy term. Neither do they cover any acts that occur after the policy term expires. The policy freezes a piece of time and only applies to what occurred in that slice of time, but it covers that slice of time going forward. Generally, occurrence policies come with higher premiums than claims-made policies. Occurrence policies have also become increasingly difficult to find, especially for high-risk practice areas or those with a long statute of limitations.
As often occurs, names and terms change over time. With due apologies to Billy Shakespeare, "a rose by any other name…would still have thorns." Tail coverage generally now goes by the name of an Extended Reporting Period (ERP) endorsement. The function remains unchanged. Only the name has changed for reasons best known to the insurance industry. ERP endorsements modify the provisions of a claims-made insurance policy so the policy will cover a claim reported by the attorney to report claims after the expiration or cancellation of the claims-made professional liability policy. Claims-made policies only cover claims made and reported during the policy period or within a short grace period after the policy ends. Accordingly, if an attorney stops practicing, retires, changes carriers, or switches to an occurrence policy, their former claims-made policy will not likely cover claims that arise from their past work. An ERP extends the reporting period for such claims, providing protection for the attorney's prior acts.
Tail coverage comes as an optional endorsement to a claims-made policy, either at the inception of the policy or at the termination of the policy. The endorsement specifies the length of the extended reporting period, which can range from one year to unlimited, depending on the carrier and the premium. The endorsement also specifies the retroactive date, the earliest date of occurrence for which the tail policy will cover a claim. The retroactive date is usually the same as the original claims-made policy unless the attorney has purchased prior acts coverage from a previous carrier. The endorsement also states the aggregate limit of liability, which is the maximum amount the carrier will pay for all claims reported during the extended reporting period. The aggregate limit is usually the same as the original claims-made policy unless the attorney has purchased an increased limit option.
Tail coverage extends the reporting window for claims related to the attorney's past work that are not discovered or reported until after the claims-made policy has expired. For example, suppose an attorney has a claims-made policy that covers the period from January 1, 2020, to December 31, 2020, with a retroactive date of January 1, 2019. If the attorney performs legal services for a client on March 15, 2020, and the client sues the attorney for malpractice on February 1, 2021, the claim would not be covered by the claims-made policy because it was reported after the policy expired. However, had the attorney purchased tail coverage with a one-year extended reporting period, the tail policy would cover the claim, because it was reported within one year of the policy termination, and it arose from the attorney's prior acts within the retroactive date.
Many policies written over the last several years include an ERP automatically at no additional premium if the attorney maintains coverage with the carrier for a minimum number of years (my carrier uses three). That works well for both the attorney, who gets the ERP without a hefty premium, and for the carrier, as it keeps clients in the fold. Don't think this means you get the ERP at no cost. I have not done a study to confirm this, but it would shock me to learn that the policy with an ERP included costs a chunk more than the same policy would cost without it.
Tail coverage provides peace of mind and financial security for attorneys no longer covered by a claims-made policy. It protects them if they get sued for malpractice or negligence that occurred during their past practice, even if the claim is made years later (as long as it is made and reported during the term of the ERP). Tail coverage also preserves the continuity of coverage for attorneys who switch from one claims-made policy to another, avoiding coverage gaps in their insurance history. Tail coverage can also benefit attorneys who join a firm with an occurrence policy, which covers claims that occur during the policy period regardless of when reported. Occurrence policies do not cover prior acts, so tail coverage can fill that gap for the attorney's previous work.
Tail coverage does not cover new claims arising from the attorney's current or future work. It only covers claims related to the attorney's prior acts within the retroactive date and the claims-made policy period. For example, suppose an attorney has a claims-made policy that covers the period from January 1, 2020, to December 31, 2020, with a retroactive date of January 1, 2019. The attorney purchases tail coverage with a one-year extended reporting period and then joins a new firm with an occurrence policy on January 1, 2021. If the attorney performs legal services for a client on February 15, 2021, and the client sues the attorney for malpractice on March 1, 2021, the claim would not be covered by the tail policy because it arose from the attorney's current work. The occurrence policy would cover the claim because it occurred during the policy period.
The decision to purchase tail coverage depends on several factors, such as the attorney's practice area, risk exposure, retirement plans, and budget. Some practice areas, such as estate planning, family law, and real estate, may, in some jurisdictions, have a longer statute of limitations and a higher likelihood of delayed claims than other areas of practice. Attorneys who practice in these areas may want to consider tail coverage to protect themselves. Attorneys retiring, selling their practice, or leaving the profession may also want to purchase tail coverage to provide protection for any claims that arise after they stop practicing. Attorneys who are changing carriers or switching to an occurrence policy may need to buy tail coverage to maintain continuous coverage and avoid any exclusions or gaps in their insurance history. However, tail coverage can be expensive, costing from 100% to 300%, or possibly even more, of the annual premium of the claims-made policy. Attorneys joining a firm with a claims-made policy may not need to buy tail coverage if their new firm's policy has a retroactive date far enough back and the new firm agrees to cover prior acts under its policy.
Tail coverage, or ERP, is an important and complex insurance product that attorneys should carefully evaluate before purchasing or declining. It can provide valuable protection and peace of mind for attorneys no longer covered by a claims-made policy, but it comes at a cost. Attorneys should consult with their insurance agent or broker, their former and current carriers, and their legal counsel to determine the best option for their situation. Or whatever it's worth, I like the idea of attorneys covering their tails.
