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Compare run-off coverage to protect your company’s past work

Get extended claims coverage for businesses that close or merge.

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Run-off coverage protects your business from claims of negligence or damage involving services provided during your previous insurance policy. This allows customers to file claims against your business for several years after your policy ends.

How does run-off coverage work?

Run-off coverage extends your business’s liability after ending the policy, covering past work done by your business. The coverage applies to claims-made policies that only cover claims made while the policy is in force. By buying run-off coverage, a business can end its policy but still file claims for past work that arises several years after the end date.

In most cases, businesses buy run-off coverage when it faces an organizational change like merging with or acquiring another business or closing its doors. Many businesses will buy up to six years of run-off coverage to fulfill their merger or acquisition agreement.

However, run-off coverage only protects businesses for past work. You may need separate liability insurance if you’re continuing your operations.

Run-off coverage in action.

Top Lights is a national company that designs and renovates commercial lighting. Since the company is expanding globally by merging with Lowell Lighting, Inc., the two companies will use Lowell Lighting’s insurance for professional liability and directors and officers liability coverage.

Top Lights should purchase six years of run-off coverage for professional advice given to clients before the merge. Run-off coverage can also protect Top Lights for CEO and other leaders’ decisions before the merge.

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Run-off coverage vs extended reporting period

Run-off coverage works similar to an extended reporting period (ERP), also nicknamed tail coverage. However, the main difference is the amount of time the coverage usually lasts. An ERP typically lasts one year, while run-off coverage may be purchased for three or five years.

Businesses with large organizational changes may need run-off over ERP coverage because of the time insured or to meet requirements in a contract. However, professionals like consultants may choose ERP coverage when switching insurance companies.

ERP coverage in action.

Trisha is a digital marketing consultant who keeps professional liability coverage in case of a claim. She decides to switch insurance companies to save money on a lower premium. However, Trisha’s new insurance company will cover some previous work but not all work done under her previous policy. For extra protection, Trisha purchases extended reporting period coverage on her previous policy for one year.

When do businesses need run-off coverage?

Most businesses buy run-off coverage during a major change in structure or control.

Your company might need run-off coverage if it…
  • Merges with another business
  • Acquires another business
  • Closes its doors — This can include individuals like doctors, lawyers or consultants ending their careers.
Your company might not need run-off coverage if it…
  • Keeps the same insurance company
  • Purchases a new policy that covers previous work
  • Buys extended reporting period coverage

How much does run-off coverage cost?

The cost of run-off coverage may depend on several factors, including:

  • Number of previous claims
  • Amount of time since the policy ended
  • Coverage previously bought

Bottom line

Your business may buy run-off coverage after ending your previous liability insurance policy to protect against new claims involving your business’s past work. Once you’ve secured enough coverage, consider other types of business insurance you may need for your new business structure.

Frequently asked questions about run-off coverage

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