What the form is
The Extended Reporting Period Endorsement EP 28 01 is designed for use with claims-made Employment-Related Practices Liability (ERPL) insurance policies. Its primary purpose is to provide an extension of time, beyond the policy period, for reporting claims that arise from wrongful acts committed on or after the policy's retroactive date and before its termination. This is commonly known as "tail coverage" or an Extended Reporting Period (ERP).
Classes of business it applies to
This endorsement applies to virtually any business or organization that purchases a claims-made Employment-Related Practices Liability insurance policy. ERPLI itself covers claims related to wrongful employment acts such as discrimination, harassment, wrongful termination, and retaliation. Examples include:
- Private companies of all sizes
- Non-profit organizations
- Publicly traded companies (though they may have more specialized D&O/EPL policies)
For instance, if a company is acquired, ceases operations, or switches from a claims-made policy to an occurrence policy (or to a new claims-made policy with a different insurer that doesn't provide prior acts coverage), this endorsement would be crucial to cover claims that occurred during the policy period but were not reported until after its expiration.
Special considerations
- Purchase Window: The insured typically has a limited time (e.g., 30 to 60 days) after the policy period ends to request and pay for this endorsement.
- Duration: The EP 28 01 commonly extends the reporting period for a set duration, often three years, though other durations might be available.
- No New Coverage: It's important to understand that an ERP endorsement does not cover wrongful acts that occur *after* the original policy period has ended. It only allows for the reporting of claims stemming from acts that took place *before* the policy terminated and after the retroactive date.
- Supplemental Limits: The endorsement may provide a supplemental aggregate limit of liability for the extended reporting period, which is often equal to the original policy's aggregate limit. This means the ERP has its own dedicated limit and does not erode the original policy's aggregate limit if it was already exhausted.
- Trigger: The need for this endorsement is typically triggered by policy cancellation, non-renewal by either the insurer or the insured, or a change in coverage terms (e.g., advancing the retroactive date on a renewal policy).
For example, if a company with an ERPL policy (retroactive date January 1, 2020) is sold on December 31, 2023, and its policy is terminated, the EP 28 01 would allow claims arising from wrongful acts between January 1, 2020, and December 31, 2023, to be reported for the duration of the extended reporting period (e.g., until December 31, 2026).
Key information for agents and underwriters
- Risk Assessment: The decision to offer and the pricing of an ERP can depend on the insurer's assessment of the potential for future claims arising from past acts. Factors include the insured's industry, claims history, employee count, and HR practices.
- Pricing: The premium for an ERP can be substantial, often a multiple of the original policy's premium (e.g., 75% to 200% or more), reflecting the insurer's ongoing exposure without collecting further premium for new risks. ISO rules may set parameters for the maximum charge.
- Coverage Gaps: Agents should emphasize the importance of an ERP to clients with claims-made policies to avoid potentially catastrophic coverage gaps if the policy is terminated and not replaced with full prior acts coverage. This is particularly critical during mergers, acquisitions, or when a business is winding down.
- Underwriting Guidelines: Underwriters will review the circumstances leading to the policy termination. If an insured is cancelling mid-term due to adverse claims experience or financial instability, the insurer might be more cautious or charge a higher premium for the ERP.
- Alternative to ERP: Sometimes, a new insurer may offer "prior acts coverage" or "nose coverage," which covers acts that occurred before the new policy's inception date. This can sometimes eliminate the need for an ERP from the previous carrier, but terms and conditions must be carefully compared.