Meaning
Insurance policy amendments extend the reporting period for claims arising from acts committed before the policy’s cancellation or expiration date, typically after a company is acquired or liquidated. A run off coverage endorsement ensures that former directors and officers remain protected from lawsuits initiated after the company ceases to exist as an active entity. This endorsement governs the tail risk of corporate transactions and liquidation proceedings.
It usually covers a fixed period, such as six years, which matches the statute of limitations for most professional liability claims.
Tail Risk Protection
Tail risk protection is essential for retired board members who could otherwise face personal liability for past decisions. This coverage is purchased at the time of the corporate transaction or closure. It pays for defense costs and settlements.
Policy Trigger
Claim filing must occur within the extended reporting period for the endorsement to apply. The underlying acts must have occurred before the inception date of the run off period. This timing prevents new acts from being covered.
Financial Funding
Premium payments for the run off endorsement are usually made in a single lump sum at the start of the coverage period. This guarantees that the policy remains in force.
