When companies close, merge, or get acquired, the risks don’t end when operations do. Claims can—and often do—emerge months or even years later. That’s where tail insurance comes in. Tail insurance, also known as wind-down insurance, extended reporting period (ERP) coverage, or runoff coverage, protects company leaders against legal claims arising after a policy ends but tied to actions taken while coverage was active.

From winding down voluntarily to navigating M&A or investor obligations, tail coverage is a crucial safeguard for protecting personal assets after a company has shut down and avoiding a devastating financial situation.

What is Tail Insurance?

Tail insurance extends the time you have to report claims under a “claims-made” policy like Directors & Officers (D&O), Errors & Omissions (E&O), Cyber, or Employment Practices Liability Insurance (EPLI). 

These policies only cover claims made and reported while coverage is active. If a lawsuit lands on your desk after your company closes and your policy has expired, you’ll have to cover the costs with your personal assets—unless you’ve secured tail coverage.

Who Needs It?

Tail insurance is important for companies winding down operations or undergoing M&A, particularly for:

• Unresolved contractual obligations
• Highly regulated industries such as healthtech or fintech where authorities may initiate an investigation
• Founders without D&O coverage looking for standalone protection ("naked tail")
• Executives, board members, and officers exposed to ongoing legal liability even after operations end

Think of a standard D&O policy like a security camera that only records while it's plugged in. Tail insurance lets you review footage even after the camera’s unplugged. It doesn't protect against new incidents but allows you to respond to past ones that surface later.

Without tail coverage, there’s no company balance sheet to absorb legal defense costs, settlements, or judgments. This leaves personal assets on the line.

How Does Tail Insurance Work?

Tail insurance activates after a claims-made policy is canceled or expires. It applies only to events that occurred while the original policy was active but gives you extended time, typically one to six years, to report related claims.

How Long Does Tail Insurance Last?

Most carriers offer options for one, three, or six years. Six years is the most common choice, as it aligns with the statute of limitations for many legal actions involving corporate governance or fiduciary duty.

What Does Tail Insurance Cost?

The cost of tail coverage considers the full length of the policy, whether it's one year, six years, or something in between. The payment is typically made in a single transaction, though large premium amounts can be financed through third parties. 

Premiums generally range from 100–300% of your annual D&O premium depending on the tail period and risk exposure. Tail insurance pricing varies based on:

• Length of coverage
• Company risk profile (e.g., litigation history, financials)
• Whether you’re extending an existing policy or purchasing “naked tail” (no prior coverage)

What Does Tail Insurance Cover?

Tail insurance mirrors your active D&O, E&O, or EPL policy, but only for claims reported during the tail period that stem from actions taken while the original policy was active. Common covered scenarios include:

• Claims from shareholders alleging mismanagement
• Lawsuits from creditors or vendors post-dissolution
• Regulatory investigations tied to past actions
• Disputes over cap table, employment, or IP decisions

Example: A company purchases a six-year D&O tail after winding down. A year later, a former investor sues alleging breach of fiduciary duty in a 2024 funding round. As long as the alleged conduct occurred before the wind-down date, the tail policy would respond.

What Isn’t Covered?

Tail insurance does not cover:

• Claims related to actions that occur after the original policy expires
  
• Incidents already known or in progress before the tail begins (unless the policy includes prior acts coverage)
  
• Acts excluded by the policy, such as criminal conduct, fraud, or personal gain
  
• Claims outside the scope of the original D&O/E&O policy (e.g., discrimination claims, unless EPL is included)

How to Buy Tail Coverage

Buying tail coverage can feel complex, especially for companies in flux. But the process is straightforward once you know what to expect.

1. Understand Your Current Coverage

If you already have D&O or other claims-made coverage, check whether your carrier offers pre-set ERP options (e.g., 100% for 1 year, 175% for 6 years). These are typically offered as an endorsement at policy cancellation.

2. Don’t Have D&O? You Can Still Get Tail

If your company never purchased D&O, you may still be eligible for standalone or “naked” tail coverage. This involves submitting an application, financials, and a cap table to specialty markets.

3. Timing Matters

You’ll need to request tail coverage at or before your existing policy is canceled or expires. If purchasing standalone coverage, allow extra time. Underwriting may take a few days to a week.

Buying Tail Coverage

The steps to purchase tail coverage typically involve:

1. Evaluate Your Needs: Understand your risk exposure and contractual requirements to decide the duration of coverage you need (1, 3, or 6 years).
2. Request Quotes: Submit an application, financial records, and details on your winding-down process to insurance providers or brokers.
3. Review Terms: Compare quotes, coverage details, exclusions, and pricing carefully.
4. Finalize Coverage: Resolve any outstanding requests for information, secure the necessary approvals, and finalize your policy.

Key Considerations Before Purchasing

Before securing tail coverage, it's essential to:

• Understand exactly what the policy covers and any specific exclusions.
• Clarify the financial solvency of the insurer.
• Determine the duration of coverage you genuinely need based on your company's litigation risks.
• Confirm how claims are reported and handled post-policy expiration.

Most importantly, work with a broker who understands your situation. Wind-down scenarios are emotionally and operationally complex. A knowledgeable advisor like Vouch can guide you through the coverage you need and help you avoid common pitfalls.

Tail insurance isn’t just a nice-to-have when closing up shop, it’s often essential. Without it, directors and officers can be personally on the hook for decisions made months or even years prior. With it, they can confidently close out the chapter knowing they’re still protected.

If your company is winding down, being acquired, or you’re simply stepping away, talk to your broker early. Tail coverage is your final safeguard—and it’s worth doing right.

This content is for informational purposes only and does not constitute an offer of insurance. Coverage is subject to underwriting, availability, and the terms, conditions, and exclusions of the applicable policy. Not all products are available in all jurisdictions. Please contact Vouch for more information.

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Vouch Specialty Insurance Services, LLC (CA - 6004944 - vouch.us/legal/licenses)

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