While a policy can cover an insured through the time the policy is active, insureds may require a type of coverage for when they are in between insurance providers or transitioning from working to retiring. In claims-made professional insurance liability, there are two types of coverage options: tail coverage and nose (or prior acts) coverage. These two types of coverage share the characteristic of addressing coverage gaps related to timing, however they vary in how they operate in practice.
Tail Coverage
Tail coverage or Extended Reporting Period (ERP) is an optional add-on to claims-made policy that allows insureds to report claims that arise after the policy expires but are based on incidents that occurred while the policy was active. Tail coverage is typically needed when a professional decides to retire, switch carriers, or cancel their claims-made policy. These decisions may cause a professional to no longer have coverage for claims made in the future, even if the incidents happened while the policy was in place. Tail Coverage ensures that these claims can still be reported even after the policy ends.
Tail coverage is purchased by the insureds, often for an additional premium, when the insured terminates their policy. The coverage typically allows claims to be reported for a specific time period: Examples can include one, three, or five years or even indefinitely. The time period is dependent on the terms of the policy. Some policies feature a provision that offers tail coverage at no additional charge under specific circumstances like death, disability, and retirement.
A situation where tail coverage is needed could be a surgeon retires and cancels their professional liability insurance. If a lawsuit is filed two years later for an incident that occurred while the policy was active, tail coverage would allow the claim to be reported. Medical professionals entering the field who may be joining a medical group or system should determine who is responsible for paying the tail coverage if the physician looks for a different professional liability carrier.
Nose Coverage
Nose coverage, also known as prior acts coverage, is designed to cover claims for incidents that occurred before the insured’s new policy start date but were not reported under a previous claims-made policy. When switching insurers, nose coverage is commonly requested on the new insurer’s policy as an alternative to purchasing tail coverage from the prior insurer. Nose coverage is traditionally needed if a professional is switching insurers. This type of coverage ensures the professional is protected for claims arising from events that happened before the start of the new coverage.
Nose coverage is put into place when the new insurer agrees to cover claims made after the new policy begins but relating to acts that occurred before the new policy’s effective date. This coverage is typically arranged by defining a retroactive date, which dictates how far back the policy will cover prior incidents.
A case for nose coverage could be a physician switches to a new insurer. A patient files a claim against the physician arising from a diagnosis made 17 months before when the physician was covered by the previous insurer. If the physician’s new policy includes nose coverage with an appropriate retroactive date, then the claim will be reportable.
Contributor: Chris Sweet, Vice President of Underwriting
Editor: Emily Lanning, Marketing Communications Specialist