Extended Reporting Period Mistakes
Extended Reporting Period Mistakes: Why Late Reporting Destroys Coverage
An Extended Reporting Period does not extend your deadline to report known claims. This is a misunderstanding that can lead to devastating coverage denials. According to a recent federal decision in Berkley Insurance Co. V. Caraway, it has been proven that even insureds who purchase tail coverage can find themselves completely uninsured if they fail to report a claim during the active policy period.
This blog breaks down what went wrong and how you can avoid it.
The Extended Reporting Period Is Not a Grace Period
The main issue in this case was simple but rather costly.
An Extended Reporting Period applies only to claims that are first made DURING the ERP. It does not allow you to report claims that were already made during the active policy period. That is the distinction that determines whether coverage exists or not.
If a claim is made during the active policy term, it is crucial to also report during that same active term. Waiting until the tail period is considered too late; courts consistently enforce this requirement.
The Case: A Timing Failure That Killed Coverage
In the case discussed, the insured was an attorney serving a 90-month sentence for embezzlement. A client filed suit alleging money was owed under a 2013 sale agreement. Despite the criminal backdrop, the insurer did not need to rely on a criminal acts exclusion; the denial rested entirely on timing.
Here is the timeline:
- February 11, 2023: Lawsuit served (during active policy period)
- May 1, 2023: Policy expires (shortened by endorsement)
- May 1, 2023 – May 1, 2025: 24-month Extended Reporting Period purchased
- July 20, 2023: Claim reported to the carrier (during ERP, but after policy expiration)
The insured reported the claim within the 24-month tail.
Coverage was still denied. Reason? The claim was first made in February, during the active policy period. It was not reported until July, after policy expiration. The delay ended up being extremely costly for the insured.
Why “Tailing Out” Does Not Fix Late Reporting
When retiring or closing a practice, professionals often tend to “tail out” their E&O policies. They shorten the active policy period and then purchase an Extended Reporting Period to maintain continuity for future claims. This strategy works, but only for unknown claims.
In the case discussed above, the insured already knew about the lawsuit in February, but he still shortened the policy, bought 24 months of tail coverage, and failed to report the claim before expiration.
The court emphasized and in clear policy language: the ERP applies only to claims that are first made during the ERP. It does not revive the claims that were already made but not reported.
The “No Prejudice” Argument Does Not Apply
The insured argued that the carrier suffered no prejudice from the late notice, and this argument was rejected outright.
In claims-made policies, timely notice is a condition precedent to coverage. The insurer does not need to prove prejudice. If notice falls outside the required reporting window, coverage fails. This is distinct from occurrence policies, where prejudice may matter. But with a claims-made form, deadlines are crucial.
What Brokers Must Do Before an Extended Reporting Period Is Purchased
When a client plans to retire or close a practice, the transitions must be treated as a risk event. Before binding an Extended Reporting Period:
- Conduct a claims and circumstances audit.
- Ask directly about demands, disputes, lawsuits, or potential claims.
- Report every known matter before the active policy expires.
- Document the client’s representations in writing.
- Explain clearly that tail coverage protects against unknown future claims only.
Failure to perform this review creates professional liability exposure for the broker.
What Insureds Must Do Before Tailing Out
While closing a practice or retiring:
- Review your files carefully.
- Identify unhappy clients, fee disputes, threats, or red flags.
- Report liberally. When in doubt, notify the carrier.
- Do not assume the Extended Reporting Period will protect you later.
“I’ll report it during the tail” is not a strategy. It is a denial waiting to happen.
The Bottom Line on Extended Reporting Period Coverage
An Extended Reporting Period provides valuable protection for new claims that arise after your policy expires; it does not extend the deadline to report known claims. This distinction is important. Courts enforce reporting requirements strictly. If a claim is made during the active policy period, it must be reported during that period.
Before you tail out, ensure to report everything. Otherwise, you may pay a significant tail premium and still have zero coverage when you need it most.
