A claim must be immediately reported to the insurance company during the policy period for it to be covered and settled properly. A professional will not get the benefits of policy coverage if the claim is made after the expiration of the policy. However, some policies have the option to purchase an extended reporting period.
The extended claim reporting period gives an option to cover the claims even after the expiration of the policy period.
Key Takeaways
The “Lag” Protection: As shown in Amol’s IT case, a professional error (the software bug) occurred while the policy was active, but the financial loss and subsequent lawsuit only surfaced after the policy expired. The ERP is what bridged this gap.
Strict Temporal Rules: The ERP does not cover new mistakes. If Amol had started a new project after July 20th and made an error, the extended reporting clause would not help him; it only applies to work done during the original policy tenure.
The Additional Premium Factor: This is an optional feature. Exercising the clause typically involves paying an extra fee to the insurer to keep the “reporting door” open for an additional 60 to 90 days.
Notification is Key: The clause is only effective if the claim is both made by the client and reported by the professional within the specified extension window. Missing this window by even a day can lead to a total denial of the claim.
Exclusion of Known Acts: You cannot use this clause to cover a problem you already knew about before the policy expired but failed to report. It is intended for unforeseen liabilities that come to light only after the contract ends.
A wrongful act may have occurred during the policy period, but its effects may not be seen until the policy gets over. Such a situation might put the insured in a severe condition as his policy period is over. But the extended claim reporting clause gives the insured a definite amount of time after the policy period to report a claim.
The extended claim reporting clause in a professional indemnity insurance policy is the period specified after the end of the insurance policy for reporting claims arising out of breach of duty by the insured during his policy period.
The extended claim reporting clause extends the reporting period from 60 days to 90 days after the policy expiration date. The insured however is charged with an additional premium when he exercises this option.
The following conditions must be met by the insured to get cover under the extended claim reporting clause in professional indemnity insurance:
- The occurrence of the wrongful act must be during the period of the professional indemnity insurance.
- Acts that occur during extended reporting periods cannot gain any coverage.
- It is important that the insured makes and reports the claim during the extended reporting period.
The Extended Claim Reporting Clause in Professional Indemnity Policies provides the benefit of extended reporting period for claims. It allows policyholders to report claims even after the policy has expired, ensuring coverage for potential claims arising from past incidents, providing peace of mind and protection against unforeseen liabilities.
Exclusions to the Extended Claim Reporting Clause may vary depending on the policy. Common exclusions may include claims arising from known acts or circumstances, prior knowledge, or claims reported outside the specified extended reporting period.
Case: 1
Amol was an owner of an IT company named R.N Inc. This firm aced in providing software solutions to its clients according to their needs. Amol had secured a professional indemnity policy with an extended claim reporting clause from an insurance company.
One day, Amol got a new project from a big client. The project consisted of writing a new program for the client’s software. After completion of the project, the program was handed to the client. A month passed, and the program started creating problems. The client found that there was a bug in the program which was gone unnoticed by Amol. As a result of this bug, the program crashed, and the client suffered massive financial losses.
Read More: How does Professional Indemnity Insurance Benefit the IT Firms?
Summary Table: The Extended Reporting Clause
| Feature | Standard Policy Period | Extended Reporting Period (ERP) |
| Occurrence of Error | Must happen during the active policy term. | Must have happened during the original policy term. |
| Reporting of Claim | Must be reported before the expiry date. | Can be reported for a set window (e.g., 60–90 days) post-expiry. |
| New Work Coverage | Covers errors in work done today. | No coverage for any new work done after the policy expires. |
| Cost | Part of the annual premium. | Usually requires an additional “one-time” premium. |
| Main Benefit | Immediate protection. | Protection against “latent” errors discovered late. |
Amol was sued by the client for his negligence in the programming. Amol rushed to his insurance providers to seek help.
Upon investigation, it was found that Amol had created and submitted the program to his client on 5th July 2013. Amol’s professional indemnity policy expired on 20th July 2013. But the policy had an extended claim reporting clause which stated that Amol could file for a claim up to 60 days after the policy was over. But it was vital that Amol catered to the service during the tenure of the policy period. Since Amol had submitted the program to the clients on 5th July 2013, which was before the policy got over, the insurance company approved his claim. Thus, the extended claim reporting clause in Amol’s professional Indemnity Insurance policy helped him to get out of the situation even when the policy period was over.
Frequently Asked Questions (FAQs)
1. Is the Extended Reporting Period the same as renewing my policy?
A) No. Renewing a policy provides coverage for new work. An ERP is used when you are not renewing (e.g., closing your business or retiring) but want to remain protected for the work you have already finished in the past.
2. What happens if a claim is filed 120 days after my policy expires, but my ERP was only for 90 days?
A) In this scenario, you would have no coverage. The insurer is only liable for claims reported within the exact timeframe specified in your policy. This is why many professionals choose longer “tail” options if their industry has a high risk of long-term errors.
3. Does the Extended Claim Reporting Clause cover “Occurrence-based” policies?
A) No. This clause is specifically designed for “Claims-made” policies. In an occurrence-based policy, you are already covered for any incident that happened during the policy period, regardless of when it is reported.
4. Can I buy an Extended Reporting Period if my policy was cancelled for fraud?
A) Generally, insurers will refuse to offer an ERP if the policy was terminated due to non-payment of premium or a breach of the insurance contract, such as fraud or misrepresentation.
5. If I have a 90-day ERP, can I do one last “quick project” for a client during those 90 days?
A) You can, but it won’t be covered by that policy. The ERP only covers “Wrongful Acts” that occurred prior to the original expiration date. Any work performed during the 90-day extension period would require a completely new, active insurance policy.
About The Author
Amit
MBA Finance
Amit is an experienced insurance professional with 7 years in the industry, specializing in Errors & Omissions Insurance. Writing for SecureNow, he provides clear and insightful blogs and articles to help professionals understand the importance and nuances of E&O coverage. His expertise ensures that readers receive practical advice on protecting themselves from potential liabilities and professional risks. Dedicated to making complex insurance topics accessible, Amit stays updated on industry developments, delivering valuable content that empowers professionals to make informed decisions about their E&O insurance needs.
