Extended Reporting Period [‘ERP’] A.K.A. ‘Tail Policy’
A law firm is exposed to a potential claim far beyond the policy period. Often, a claim will be made several years after the lawyer’s services are performed. For example, when a lawyer from an Estate Planning practice writes a will that contains an error, the family might not discover the error until several decades later. Even though the policy has expired and the standard time to report the claim has passed, an ERP endorsement would provide coverage in this case.
What is an ERP?
Lawyers Professional Liability policies are written on a claims made and reported basis. This means all claims must be made against the policyholder and reported to the insurer during the policy period. There is no coverage for claims that arise after the policy has expired. To address this issue, insurers offer an Extended Reporting Period [‘ERP’] also known as a ‘ Tail Policy’’. An ERP is a time extension to report claims that arise from services performed BEFORE the policy expired but becomes known to the policyholder AFTER the policy termination date.
When do you need an ERP?
Claims-made policies don’t cover claims reported after your coverage has terminated, if your policy has lapsed, been cancelled or non-renewed. Therefore, if you don’t have a replacement policy an ERP is the only way to guarantee coverage.
What length of ERP do you need?
The length of the ERP you need to purchase depends on the ERP options offered from the policy you have in place at the time of cancellation. Not all policies offer the same ERP options. The reporting periods can vary from 1 yr, up to an unlimited amount of time. Therefore, it is very important to think about how much time you will need to purchase as you consider which policy to buy for your firm.
The typical measure is the controlling Statute of Limitations for your state for your area of practice. For example, if you are a personal injury firm and you have an 18 month SOL, then a 2 – 3 year ERP would be sufficient. If on the other hand, you have an Estate Planning practice where the error may not be known for 20 years after the execution of a will or trust, you would need a policy that offers an unlimited ERP option. Keep in mind an ERP is an option that lies within the existing insuring agreement you have at cancellation. So, if you need an unlimited ERP and you discover at the time you cancel your policy that it doesn’t offer that length of time, you wouldn’t have that option available.