Many employment practices liability insurance policies contain something called an “extended reporting period.” This period can greatly impact what claims a policy will cover. Here’s a look at what extended reporting periods are and how they impact the protections that Massachusetts businesses receive from their employment practice liability policies.
Extended Reporting Period in Your Employment Practices Liability Insurance Coverage
Employment Practices Liability Insurance Policies Are Usually Claims-Made Policies
There isn’t one set form that all employment practices liability insurance policies follow, so terms, conditions and coverages vary from policy to policy. The majority of ELPI policies, however, are claims-made policies.
Claims-made policies are different from occurrence policies, which most auto, general liability and workers compensation policies are. Rather than determining coverage based on when an incident occurred (as occurrence policies do), claims-made policies typically base coverage on when a claim is filed. If a claim is filed within the policy’s effective period, the claim is usually covered (provided it’s not excluded by another condition). If the claim is filed afterward, it may not be covered.
As an example, assume a Massachusetts business had an ELPI policy for all of 2012, 2013 and 2014. The business owner decided to terminate the policy on December 31, 2014, though, because premiums were becoming too high. In 2015, the business received a letter from an attorney accusing the business of discriminating against an employee in 2013. Even though the incident took place while the policy was in effect, it likely wouldn’t be covered because the claim was filed after the policy expired.
Extended Reporting Periods Provide More Time for Reporting Claims
Extended reporting periods do just what their name suggests. They extend the amount timeframe for reporting claims, usually pushing it beyond the end of a policy’s effective period. Because this option extends the reporting period beyond the end of the effective period, it’s sometimes called “tail coverage.”
Using the above example, the business would have had coverage for the claim that was filed in 2015 if it had purchased a one-year extended reporting coverage option. With one year of tail coverage, claims filed up until December 31, 2015 would be covered.
Businesses Should Ask Questions About Extended Reporting Periods
Because employment practices claims might not be filed until long after an incident occurred, extended reporting periods can be extremely valuable to businesses. These periods should be carefully considered when selecting an ELPI policy. Specifically, there are several particular questions that businesses should ask about these periods when considering a policy:
Is the extended reporting period available for purchase at any time or only if the insurer cancels the policy?
How long does the extended reporting period last (e.g. one year, two years or longer)?
How long does the business have to choose whether to purchase the extended reporting period?
What is the extended reporting period’s premium?
In most cases, businesses have 30 or 60 days to select an extended reporting period, and period premiums are typically expressed as a percentage of the policy’s current premium.
Work with a Massachusetts Agent Who’s Familiar with ELPI Policies
Understanding exactly how an employment practices liability insurance policy’s extended reporting works can be complex. Therefore, it’s often wise to work with an independent insurance agent who’s licensed in Massachusetts and familiar with ELPI policies when comparing policies for your business. An agent will be able to help you figure out when a policy’s extended reporting period is available for purchase, how long it will last and how much it will cost.