A provision in a claims-made policy stating that the insurer remains liable for
claims caused by wrongful acts that took place under an expired or canceled
policy, for a certain time period.
For example, consider a policy written with a January 1, 2015-2016, term and a
5-year runoff provision. In this situation, coverage will apply under the
runoff provision to all claims caused by wrongful acts committed during the
January 1, 2015-2016, policy period that are made against the insured and
reported to the insurer from January 1, 2016-2021 (i.e., the 5-year period
immediately following the expiration of the January 1, 2015-2016, policy).
Although runoff provisions function in a manner that is identical to extended
reporting period (ERP) provisions, there are several differences. First, ERPs
are generally written for only 1-year terms, whereas runoff provisions normally
encompass multi-year time spans, often as long as 5 years. Second, while ERPs
are most frequently purchased when an insured changes from one claims-made
insurer to another, runoff provisions are generally used when one insured is
acquired by or merges with another. In such instances, the acquired company
buys a runoff provision that covers claims associated with wrongful acts that
took place prior to the acquisition but are made against the acquired company
after it has been acquired.