Unilateral Extended Reporting Period Provision

What is Unilateral Extended Reporting Period Provision

A unilateral extended reporting period provision is an insurance contract provision that allows the insured to extend the period of time in which coverage is provided in the case that the insurer decides to cancel or not renew the insurance contract. Unilateral extended reporting period provisions are add-ons, and insured parties must pay an additional fee in order to have this provision. In industry parlance, an extended reporting period provision is also known as "tail coverage".

Understanding Unilateral Extended Reporting Period Provision

A unilateral extended reporting period provision is also known as one-way tail extended reporting provisions. Individuals and businesses that purchase claims-made liability insurance policies may ultimately not continue to use the same policy for a number of reasons. The policy may be replaced with a different type of liability policy, such as an occurrence policy; it may be replaced with a claims-made policy with a different retroactive date, which is more beneficial to the policyholder because it covers claims from a longer period of time; or it may be canceled or not renewed.

Many claims-made policies provide — or may be required to provide by regulators–an extended reporting period provision. In some cases, the extended reporting period coverage is not an option that can be added by the insured, and instead is an option that can only be added by the insurer. The insurer will provide coverage over an extended reporting period if the insurer is the party that cancels the policy or does not allow it to be renewed. This is referred to as a one-way tail or unilateral extended provision. If both the insurer and the insured have the option of adding basic extended reporting period coverage, it is referred to as a two-way tail or bilateral extended provision.

Unilateral vs. Bilateral Extended Reporting Period Provisions

Unilateral extended reporting period provisions are less desirable than bilateral reporting period provisions because coverage can only be extended if the insurer is the party to end the insurance contract. This means that the insured does not have the option of extending coverage without the insurer doing something first.

Most professional liability policies provide an insured with options to purchase a variety of extended reporting period provisions of varying length. These types of extended reporting periods are of the bilateral variety, since the insurer may also choose to include it in the policy at the time it is purchased or make it available for purchase after the fact. The insured typically may purchase the ERP for a period of one year, three years, five years, and, under some policies, ten years. The cost is generally a multiple of the last annual policy premium and depends upon the length of time selected for the extended reporting period.

Example of Extended Reporting Provision

Jonathan has been laid off. In such a situation, typically, he would not have medical insurance since coverage from his previous place of employment should cease to exist on his last day at work. However, unilateral extended reporting provisions enable his previous employer to cover him for another three months after his last day. (This situation assumes that Jonathan's employer has a valid claims made policy to cover its employees). Jonathan must find a job within that time period in order to ensure continued medical insurance.