Is my design firm required to get the extended reporting period or ‘tail’ for Professional Liability?
It is important to understand what an extended reporting period (ERP), also called a ‘tail’ policy is. The ERP is an extended period of time after the end of a policy period for reporting claims to the insurance company. The extended reporting period is not required by law; it is a business decision by your firm to have an extended period of time to report claims.
Most insurance companies offer a courtesy automatic extended reporting period that is typically 60 days after the end of the policy period. As you can imagine this isn’t a long period of time to report a claim after the policy has expired. The insurance companies’ solution for this is an optional extended reporting period option.
The optional extended reporting period will vary depending on the insurance company. There are typically one, two, three and five year ERP options available. The amount of premium will also vary with each company but they are all based on the expiring premium. So for example, it may be a five year policy for 300% of the expiring premium.
Your design firm is not required to have the optional extended reporting period. However, you may want to carefully consider getting at least a one year ERP to have an extended time period to report claims or potential claims that may arise. Many, when considering an ERP, look at what the statute of limitations are for the location of the projects. You may never know when to expect a claim but generally your firm will know how a project went overall. If you think there may be potential issues, it may be a good idea to get an ERP.