Extended Reporting Periods for Nonprofits

 

Every non-profit has a life-cycle; some can be very long and last for many years while others can be quite short in comparison.  Non-profits shut down for a variety of different reasons.  One agency might dissolve due to a change in the market or market conditions, another due to changing policies or guidelines. Some agencies merge with other firms to combine assets and/or save on accreditation costs, like we saw happen in 2008 when The Hague was ratified.  Some directors may retire or are unable to continue providing services altogether due to the outright exhaustion or stress that directing a non-profit can cause, what some people refer to as the “burn out” factor.   

 

When a non-profit chooses to close its doors, it may require a special coverage that could add an additional unforeseen insurance cost, especially for the non-profit that offers specialized professional services like adoption, therapeutic foster care, mental or behavioral health, or skilled medical care.  Professional services are insured under a specific type of coverage form called a claims-made policy and it responds differently to a claim then the traditional, better known and understood occurrence policy.  When planning any type of modification to your current operation, but especially when you have made the decision to close your doors, discuss the change you are contemplating with your professional liability insurance broker or agent.  This conversation needs to take place PRIOR to making the change, not after.  The consequences of not doing so could be serious.  For more information, keep reading.

 

Most liability insurance for professional services like adoption or foster care is written on a claims-made basis.  For a claim to be covered, the claim must be first made against the policyholder and reported to the insurance company during the policy period.  If a policy expires and a claim is made after the expiration, the individual professional and the organization itself will not have coverage by that policy. Coverage is provided for claims-made and reported after the expiration of a claims-made policy only if such claims arose from acts or omissions occurring during an insured period and reported before the extended reporting period ends. Some policies, however, will provide automatic coverage for claims related to negligent performance during the policy period, provided that the claim is reported within a set and limited time after the policy expiration date, which is usually between 60 days to one year, for no additional charge.   

 

Professional Liability coverage is often referred to, by underwriters, as having a long “tail”.

Which means, the negligent act or omission may take place today, but harm arising from that act or omission may not be discovered or a claim made against the organization or individual for a considerable period of time. In most states, this period of time is limited by the statute of repose, which sometimes can be as little as 2 years.  However, for abuse or molestation claims, the statute of repose has been altered or amended by most states to at least 2 to 10 years after the individual “discovers” the abuse, or in the case of a minor, turns 18.  Other states like Florida, have eliminated any type of statute of repose, and the claim can be brought in perpetuity. 

 

To extend the coverage of a professional liability policy beyond its policy term, it’s possible to purchase an “Extended Reporting Period” or “ERP.” The extended reporting period is the time during which a claim arising from an act or omission occurring prior to the inception date of the ERP can (in most cases) be reported and covered, subject to the policy’s terms and conditions. Most professional liability policies provide an insured with options to purchase ERPs of varying length. The insured typically may purchase an ERP for a period of one to five years. The cost is generally a multiple of the last annual policy premium and depends upon the length of time selected for the extended reporting period.

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