Let’s say you, a medical or law professional, had a five-year professional liability policy with an insurance company. But a claim arose after the policy ended. Will the insurer still cover your expenses? No, if there wasn’t an extending reporting period add-on. But yes, if there was. For example, claims of asbestos poisoning can take years or decades to surface due to the condition’s long latency periods. Similarly, surgical negligence claims may take over five years to surface due to the patient’s inability to recognize medical malpractice or financial dispute resolution delays. How does extending the reporting period save professionals from the financial toll in these situations? Let’s find out.

What Is the Extended Reporting Period?

The extended reporting period is just as it sounds – a reporting period that extends the duration of the insurance policy. Think of it as an add-on that gives you ‘tail coverage.’ That means the professional liability insurance policy covers you even after it expires. However, the ERP only covers claims that arise from negligent or wrongful acts the policyholder committed before the policy’s expiration.

ERP is available in these insurance policies:

• Directors and Officers (D&O) Liability Insurance
• Professional Liability Insurance
• Medical Malpractice Insurance
• Errors and Omissions (E&O) Insurance
• Employment Practices Liability Insurance
• Media Liability Insurance

In some policies, the policyholder automatically gets an ERP of 30 to 60 days. The policyholder may get longer extensions of up to six years.

Types of Extending Reporting Periods

There are two types of ERP.

• Basic: As mentioned, many insurers offer policyholders a 30 to 60-day extension period. You can get a basic ERP after you cancel a policy or do not renew it for the subsequent year.
• Supplemental: Optional or supplemental ERP offers longer reporting periods. Policyholders have to purchase this extension from their insurance providers. While the typical period ranges from one to six years, some insurers also provide unlimited extensions.

Do note that ERP extension is not available for occurrence-based policies. These are policies that cover claims arising from a single event. Since ERP does not cover incidents occurring outside of the policy period, they do not apply to occurrence-based plans.

Scenarios In Which You Should Get Extended Reporting Periods

There are three main situations in which you should get ERP extensions.

Operational Shut-Down

An organization planning to shut down its operations completely must get an ERP. Let’s say a clinic secured professional liability insurance or medical malpractice policy at the beginning of the year. It then ceased its operations in September of that year. When the company asks the insurer for a refund for the remaining three months, the broker recommends buying an ERP. They may quote extension options like one, three, and six years. In this case, the insurer will cover the clinic for any claims arising due to the activities performed between January and September of that year.

Acquisition or Sale

Suppose a new parent organization acquires a law firm. With the organizational structure changing, there’s a material change in the insurance policy’s risk. Most insurance policies do not cover claims arising after a sale or acquisition. It means that the insurance policy will switch to a runoff after the transaction date – an acquisition or merger. The insurer will only provide coverage for any wrongful or negligent acts the law firm committed before this date. Instead of letting a policy go to a runoff, the law firm should get an ERP. It would provide coverage for any claims arising even after the transaction date till the end of the policy period.

Non-Renewed Policy

If you plan not to renew your professional liability insurance for the next period, you can opt for an ERP to be secure. This way, even if you don’t have coverage for the future, you won’t have to worry about claims arising for past negligence or oversights.

How Can You Get an Extended Reporting Period?

Contact your insurance agent or broker to add an ERP to your policy. It’s best to do this before you cancel or non-renew your policy. Some insurance companies may have a narrow window for getting an ERP after you cancel your policy. For example, some insurers may not let you get ERP if 30 days have passed since you did not renew your policy. Meanwhile, others may require advance notice prior to cancellation. When you consult the broker, they will tell you the extension terms the company offers. Opt for shorter terms if you’re in a low-risk profession, like retail. For high-risk professionals, like law and medicine, it’s better to get five to six years of ERP on your professional liability insurance.

How Much Does ERP Cost?

The cost of ERP is calculated as a percentage of the premium you have paid for your policy. Usually, the percentage ranges between 100% and 300% of the final premium, depending on how long the supplement ERP is. The cost also depends on the type of ERP you get; renewable or fixed. A renewable ERP can be renewed for an additional fee after the extension period ends. For example, you might add an additional year once your original five-year ERP ends. Fixed ERPs cannot be extended. Once your extension period ends, your coverage finishes.

When Do You Not Need An Extended Reporting Period?

While ERP is beneficial for most professionals, not everyone needs it. You don’t need an ERP if you don’t plan to cancel your policy. The same is true if you want to renew your policy for the next year. Professionals with an occurrence-based policy don’t need to get an ERP, as the policy provides coverage for any claim arising from incidents that occurred during the policy term.

Conclusion

Extended reporting periods can protect professionals against claims arising from incidents that occur before their policy ends. While an ERP would increase your policy’s cost, it can be beneficial in the long run if you’re in a high-risk profession. Contact your insurance broker for more guidance on the duration and type of ERP best suited for your needs.