New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on February 1, 2006, representing the position of the New York State Insurance Department.

Re: Regulation 121 – Tail Coverage.

Questions:

1. What rights does the inquirer have for post-insurance policy protection from any errors or omissions he may have made during the period when his claims-made errors and omissions ("E & O") insurance policy was in effect as to claims submitted following his retirement and the termination of said policy?

2. Is the inquirer required to pay premium money in order to receive tail coverage?

Conclusions:

1. The inquirer's right to pay premium money in order to receive extended reporting period (or "tail") coverage from the insurer is outlined in N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (2000) (Regulation 121).

2. Beyond the initial 60-day period following the termination of a claim-made policy for which there is no premium due, the only exception to the requirement to pay premium money to receive tail coverage following the termination of a claims-made policy is when there is a medical malpractice policy, under 11 NYCRR Parts 73.4 and 73.5. This exception is inapplicable to the E & O policy that the inquirer had.

Facts:

The inquirer retired as a real estate appraiser for banks and financing institutions on November 1, 2005. The E & O insurance policy, which the inquirer has had for approximately five years without any claims being made, expired on or about January 11, 2006. The inquirer's insurer has offered a 60-day tail coverage. If the inquirer wants to extend the coverage, he would have to pay the quoted lump sum that doubles the annual premium of $505, or a total of $1010, to pay for a three year term, presuming that the insurer filed this premium rate with the Insurance Department and it accepted that rate.

Analysis:

N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (2000) (Regulation 121) establishes minimum standards for claims-made insurance policies issued in New York. 11 NYCRR Part 73.1(a) defines a claims-made policy as "…an insurance policy that covers liability for injury or damage that the insured is legally obligated to pay (including injury or damage occurring prior to the effective date of the policy, but subsequent to the retroactive date, if any), arising out of incidents, acts or omissions, as long as the claim is first made during the policy period or any extended reporting period."

Extended reporting period coverage (or "tail" coverage) is defined under 11 NYCRR Part 73.1(d) as "coverage for that period of time specified in the policy wherein claims first made after termination of coverage under the policy term, for injury or damage that occurs during the policy term, or that occurs on or after the retroactive date, if any, will be considered made during the policy term."

Therefore, the obvious benefit received from tail coverage is that it extends for an additional time period coverage

for claims made after termination of a policy, arising from liabilities incurred during the course of the policy while it was still in effect. 11 NYCRR Part 73.3(c)(1) requires that, upon the termination of claims-made liability coverage, "…extended reporting period coverage required by this Part must be available for any claims-made liability coverage provided under the policy." Further, upon the date that coverage is terminated, 11 NYCRR Part 73.3(d) provides that "… a 60-day automatic extended reporting period…must be provided by the insurer."

Within 30 days after termination of coverage, pursuant to 11 NYCRR Part 73.3(e)(1), "…the insurer must advise the insured in writing of the automatic extended period coverage and the availability of, the premium for, and the importance of purchasing additional extended reporting period coverage." The insured, pursuant to Part 73.3(e)(3)(i) and (ii), is given the greater of 60 days from the effective date of termination of coverage, or 30 days from the date that the written notice of availability was sent, to submit written acceptance of extended reporting period coverage.

Part 73.3(f) requires that "Except as provided in subdivision (g) of this section, and sections 73.4 and 73.5 of this Part, upon termination of coverage, an insurer must offer the insured a three-year extended reporting period." For purposes of this inquiry, a claims-made E & O insurance policy does not fall into any of the exceptions that are referenced in Part 73.3(f).

Therefore, based upon the requirements of the relevant sections of Part 73, which are referenced-above, upon termination of coverage on a claims-made E & O insurance policy, an insurer is required within 30 days after the termination of coverage to advise its insured of the automatic 60-day extended reporting period and to offer the insured coverage for an additional three-year extended reporting period. We note that where an insured does purchase additional extended reporting period coverage, Part 73.3(e)(4) states that the automatic 60-day extended period will be included within the policy period of the additional extended reporting coverage purchase.

The offered three-year tail coverage comports with the three-year statute of limitations for negligence.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.