Avoiding Lapses in E&O Insurance

You sign a contract that stipulates you must purchase E&O insurance for your business. After the job ends, you let the E&O policy go figuring it’s no longer needed. A few months later, you are slapped with a lawsuit from your former client claiming that something you did on the job caused them a financial loss. You go back to your insurance company and ask for help. Are you still covered?

Retroactive Date of Inception

The retroactive date of inception is usually the date you first bought your policy. Some E&O insurance plans offer prior acts coverage which will backdate the start of the policy to a time prior than the date of purchase. Claims are covered providing they take place within the start and end date of the policy and if they are reported within the time stipulations of your policy still being in force.

What happens when you lapse on your policy? Your policy goes into cancellation and you no longer have coverage for faulty workmanship. This creates a huge financial problem when your former client files a lawsuit. Because your policy is no longer active, you have no coverage for that lawsuit – even though the policy was in force when the error was made.

You could have a policy for years, but once you cancel it, you lose coverage for claims during that time period. Upon it being reinstated, you get a new retroactive date that cancels out the former one.

This error could cost your business thousands of dollars in lost revenue!

Tail Coverage

Do you have to keep your policy indefinitely? Not quite! Tail coverage extends the reporting period anywhere between one to five years after your expiration date. It only covers the period after the retroactive date of inception.

For more information on purchasing E&O insurance, or to get clarification on your own policy, reach out to John Quinn at 617-612-6533 or email him at jquinn@hkinsurance.com.