Claims made policies have distinct limitations on occurences that happened before the policy's incetion and after the need for ongonig coverage stops. View our claims made vs. occurance comparison chart HERE.
Prior acts are those that happened before the policy went into effect. If a claims-made policy is first issued on January 1 of this year, the policy will not provide coverage for anything that happened in December of last year or earlier. The timeline below shows graphically how this works. An exception is when there had been prior insurance coverage and an earlier date (retro date) acknowledged specifically in the policy.
The retro date is the first day an 'occurrence' will be covered if a claim is brought. The earliest is usually be the first day of the first claims-made policy. If the first policy goes into effect today, no coverage is afforded for anything that happened yesterday or earlier. The inception date will become the retro-date for the policy, and usually remains on future policies.
Occasionally "Full Prior Acts" option is offered, meaning there is no limitation of protection for some tort that happened previously. Carriers will do this when policies have been in effect for a period that generally exceeds normal discovery periods. For example, we have had Errors and Omission insurance for over 40 yerars. We now have "full prior acts" E&O protection.
Tail coverage refers to insurance that is purchased after a business stops buying current coverage, but wants protection for those 'incurred but not reported' (IBNR) claims: the ones that are out there that we just don't know about yet.
This coverage is usually bought by professional service businesses when they close. The professional needs some protections for work that was done where a claim may be brewing, but simply not aware of yet. Rather than continue to buy liability insurance after closing the business, the professional can buy this limited coverage. This is usually available contractually, and can be purchased for various lengths of time. Most common are one, three, five and 10 years.
Always work with a professional when considering these specialized terms.
Not sure about a claims made policy? Read our blog titled, "Claims Made Versus Occurrence Liability Form."