Purchasing a Professional Liability Extended Reporting Period

Mark StraussBusiness | Commercial Insurance, Professional Liability | Error's & Omissions

An existing client recently contacted me and advised that they would be selling all shares of their business to a new individual, as a result of this possible change I advised them of their duties to consider the purchase of the professional liability Extended Reporting Period. The first thing you need to understand is that most professional liability policies are on a ‘Claims Made’ policy form. What this means is that the policy will only respond to claims that are reported during the policy period. The coverage trigger is when the claim is made, and the claim must be MADE during policy period.

What the ‘Extended Reporting Period’ provides is that it will extend the time within which a claim may be made against your policy and still be reported by you. An important detail  to note is that the Extended Reporting Period will not pay for damages, claim expenses, or defend you arising out of any related or actual claim that is committed during the Extended Reporting Period.

Here are events that warrant purchasing a professional liability extended reporting period:

  1. If your operations go dormant and shut down.
  2. If you merge or consolidate with another entity.
  3. If you acquire more than 50% of the assets of another entity.
  4. If more than 50% of your company stock is acquired by another person or entity, groups or persons or entities.

If any of the above transactions take place it is important to notify your insurance carrier of the transaction and discuss what options exist for purchasing an Extended Reporting Period and what the pricing would be.