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Issues with cancelling an E&O Insurance policy


By Mike W Smith

E&O insurance policies are written on a claims made basis, which means that the insurance coverage only applies to claims relating to wrongful acts occurring on or after the retroactive date in the policy and prior to the policy’s expiration date.  When a company ceases operations, is sold or otherwise decides to cancel their policy, it is necessary to purchase an extended reporting endorsement to protect against claims against an insured that might be reported at a later date.  This is not an extension of the coverage period, only an extension of time to report claims that occurred during the coverage period. Without purchasing an extended reporting endorsement, all coverage basically ceases on the date the policy is cancelled or otherwise terminated.  There are policies that offer a short amount of time after policy expiration to report claims that occurred during the policy period, however, primarily the ability to report claims ceases when the policy terminates.

The purchase of an extended reporting endorsement is an important consideration when cancelling any claims made insurance policy.  There are a few issues to consider when cancelling an Errors and Omissions Insurance policy.

  • Limited time to purchase the coverage.   Most policies allow only a short period of time in which to purchase the extended reporting endorsement after the termination date. Typically, this period ranges from 30 to 60 days.  This means that the carrier needs to have the request and the money prior to the specified period.
  •  The premium is fully earned. Extended Reporting Endorsements are fully earned when purchased.  This means that that in most cases the premium cannot be financed.  This is often difficult for some companies because extended reporting endorsements can be expensive.
  • Restrictions on Purchasing an Extended Reporting Endorsement.  Depending upon the state and whether it is an admitted or non admitted product, the carrier may impose restrictions on the purchase of an Extended Reporting Endorsement (ERE).  Some common examples of when you cannot purchase the ERE include the following:
    • Failure to pay premiums
    • Misrepresentation of material facts in the application
    • Limitations in the amount of time the policy is in force (for example if less than 2 or 6 months)
    • If opted after the required date of notification

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Blogged on: October 16, 2010 by Mike Smith
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