Understanding Malpractice Tail Coverage When an Insurer Stops Writing Coverage

Understanding Malpractice Tail Coverage When an Insurer Stops Writing Coverage

If your malpractice insurer stops writing professional liability policies, it is natural to feel uncertain, especially when it comes to your Extended Reporting Period (ERP), also known as tail coverage.

The good news? In most cases, your tail coverage remains valid, even if the insurer is no longer issuing new policies.

This blog explains what happens to your malpractice tail coverage when an insurer exits the market and what steps you can take to protect yourself.

Does Tail Coverage Still Apply If My Insurer Stops Writing Policies?

If you purchased a claims-made malpractice policy with an Extended Reporting Period endorsement, your coverage should still be in force, even if the insurer is no longer actively writing new business.

Tail coverage allows you to report claims after your policy has ended. That obligation does not disappear simply because the insurer stops writing policies.

What If the Insurance Company Merges, Sells, or Changes Ownership?

Over time, insurance companies:

• • • Merge with another carrier
    • Sell to another insurer
    • Transfer lines of business to a new insurer

In these situations, the new or successor insurer typically assumes responsibility for handling claims associated with your tail coverage.

Your original policy obligations do not vanish, these obligations become part of the transferred or continue as obligations of the original insurer.

What Happens If the Insurer Goes Out of Business?

Things become more complex if your insurer:

• • • Is liquidated
    • Becomes insolvent
    • Fully dissolves without a clear successor

Here is what you can do:

1. 1. 1. Contact Your Insurance Agent

Your first step should be reaching out to your agent. They can often help track down the appropriate entity responsible for claims handling.

1. 1. 2. Identify a Successor Carrier

In certain cases, another insurer may have taken over the liabilities of your previous insurer, even if it is not immediately obvious.

1. 1. 3. Contact Your State Insurance Commissioner

If no clear insurer exists, your state insurance commissioner’s office is your best resource. They can help identify:

• • • • Claims handling claims responsibilities
      • Whether protections apply
      • Where to report a claim

You can start here:
http://www.naic.org/state_web_map.htm

What If My Policy Was with an Admitted Insurer?

If your malpractice coverage was issued by an admitted insurer, you may have an added layer of protection.

In those cases:

• • • The state guarantee fund may step in
    • Claims may still be honored (up to certain limits)

This provides reassurance that your tail coverage may still respond to claims—even if your original insurer no longer exists.

What about a Non-Admitted Insurer or a Risk Retention Group?

If your policy was issued by a:

• • • Non-admitted insurer
    • Risk Retention Group (RRG)

…and that entity becomes insolvent/liquidated, the situation can be more uncertain.

In these cases:

• • • Guarantee funds may not apply
    • Recovery options can be limited

However, it is still worth contacting your state insurance commissioner for assistance.

Things to Remember

• • • Tail coverage remains valid, even if your insurer stops writing policies
    • Successor insurers often assume claims responsibilities
    • State insurance commissioners are critical resources when insurers dissolve
    • Admitted insurers may have guarantee fund protection
    • Non-admitted carriers and RRGs may present more risk

Understanding how malpractice tail coverage when an insurer closes works can help assure you that your professional liability protection remains intact. If you are unsure about your coverage status, act today, review your policy, contact your agent, and know where to turn if your insurer is no longer around. The longer you wait the more difficult the task becomes.

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Lee Norcross, MBA, CPCU
California License # 0D87292
    L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080