Missing your Tail?

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Extended Reporting Periods are a critical feature of professional liability coverage whenever a professional reaches retirement.

I’ve noticed that most, if not all, standard physicians companies offer the doctor a lifetime tail upon retirement.  Sometimes the tail is free, if the doc has been with that insurer long enough.  Other times it’s at a relatively reasonable premium.

I’ve seen this provision in an accountants’ policy or two.

However, I have not seen it extended on architects or engineers policies or in the handful of lawyers professional liability policies I have recently reviewed.

What’s up with that?

Notwithstanding the fact that many of these professionals work in a firm environment and don’t carry individual policies, they still have the issue of coming to retirement age with an incredibly long loss development horizon.  They frequently have no control over the ability to purchase tail on their own, having been just a cog in the wheel of the firm, yet they are personally liable for their professional errors in many jurisdictions.  If the firm does not maintain coverage, or somehow moves to a policy that does not include these hapless retirees, they are bare.

I would love to see the market respond to this issue by providing an individual tail trigger (and quite possibly limit) for professionals reaching retirement age.  Maybe in the next soft market, it will evolve.

6 Comments

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  1. Chris,

    Most A/E policies do to extend coverage to retired or former employees. Most of the time a named insured includes former officers, directors, employees, etc… You did raise one important issue though and that is what happens if their former firm drops their coverage or goes out of business? Then there is no coverage for these individuals who placed their own personal seal on the drawings. Since there is currently no product that address this coverage gap it something best addressed in some form of contract between the employee and employer. Of course that may not carry much weight if the firm goes bankrupt.

    Stephen

  2. Chris –
    There are a few LPL markets that provide this. The Hartford does on their small firm policy (NOT to be confused with their really, really, REALLY small firm policy, generally tacked onto a BOP), as does Allied World, Valiant, Chicago, and probably a couple of others. Sometimes the right of an individual insured to purchase tail coverage is subject to named insured’s failure to do so, so it might not be a perfect option, but it often can be done. I have also had circumstances where an underwriter has agreed to offer an individual tail, even though it is not expressly provided for within the policy.

  3. Hi, Steve. I know that any given in-force policy does tend to cover former/retired partners, but I’ve not yet seen a tail provision that would survive the cancellation or lapse of the policy. I’ve seen it in accountants’ forms and med mal, and one of my other readers indicates it is available in some lawyers professional. But it strikes me as a shortcoming in the industry that the *individuals* continue to have personal liability until they’re in the grave, and there is not an elegant solution to providing coverage for them that coincides with their exposure. For non-standard risks, I wouldn’t think it would be a possibility. But for the preferred risks, you’d think *somebody* would come up with a solution, eh?

  4. Such a patchwork quilt of options, isn’t it, Bruce? It would be nice if the standard/preferred underwriters of all classes of business where the professional has personal liability would figure out how to address this challenge. I feel really bad for the retired professional that all of a sudden comes to my agent with no tail and is concerned for his/her security. That’s not how anyone anticipates spending their golden years.

  5. This is a terrific post Chris. Thank you for bringing this issue to light. It is only through the discovery of inequities such as this, communication, education, and the request of a sufficient number of clients and key brokers like you that such things are changed.

    Keep up the terrific work!

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