Tail policy coverage is an addition or provision within a claims-made insurance policy allowing the holder to file a claim against the policy after it has expired or was canceled, if the wrongful act that gave rise to the claim took during the expired/canceled policy. This can apply to claims made on insurance policies and typically involves paying the insurer an additional fee.
The tail policy has a number of important features
- the coverage applies only if the wrongful act giving rise to the reported claim took place during the expired/canceled policy period. Thus, there is no tail coverage available for wrongful acts if committed during the period of tail coverage
- Tail policy coverage applies for a limited time period
- Purchasing tail coverage for a specific time period does not reinstate the policy’s aggregate limit of liability
Tail Policy Example
The following text is taken from the Form PREM14A Filing with the SEC made by Adesto Technologies (IOTS) on March 16, 2020 in relation to the proposed takeover by Dialog Semiconductor PLC
5.7 Indemnification of Officers and Directors.
(b) From the Effective Time until the sixth anniversary of the Effective Time, the Surviving Corporation shall maintain in effect, for the benefit of the Indemnified Persons with respect to their acts and omissions as directors and officers occurring prior to the Effective Time, the existing policy of directors’ and officers’ liability insurance maintained by the Company as of the date of this Agreement in the form Made Available to Parent (the “Existing D&O Policy”), to the extent that such directors’ and officers’ liability insurance coverage is available on commercially reasonable terms; provided, however, that: … (ii) the Surviving Corporation shall not be required to pay annual premiums for the Existing D&O Policy (or for any substitute policies) in excess of 300% of the annual premium paid prior to the date of this Agreement by the Company for the Existing D&O Policy (the “Maximum Premium”). If any future annual premiums for the Existing D&O Policy (or any substitute policies) exceed the Maximum Premium in the aggregate, the Surviving Corporation shall be entitled to reduce the amount of coverage of the Existing D&O Policy (or any substitute policies) to the amount of coverage that can be obtained for a premium equal to the Maximum Premium. Parent and the Surviving Corporation or, prior to the Effective Time, the Company shall have the right to purchase a pre-paid, non-cancellable “tail” policy on the Existing D&O Policy for a claims reporting or discovery period of six years from the Effective Time and otherwise on terms and conditions that are no less favorable in the aggregate than the terms and conditions of the Existing D&O Policy; provided, however, that neither Parent nor the Surviving Corporation shall be obligated to, and the Company shall not (without the prior written consent of Parent), expend an amount for such “tail” policy in excess of the Maximum Premium. If such “tail” policy is purchased, the Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, maintain such “tail” policy in full force and effect in lieu of all other obligations of the Surviving Corporation under the first sentence of this Section 5.7(b).
