E&O policies are in the "Claims Made" form meaning that if my policy is in effect in 2008, and a claim is made against the policy in 2008, the claim is covered within the policy period, even if the loss being claimed actually happened several years earlier.
That is why E&O insurers question you about possible pending claims before issuing a new policy.
(The other form of insurance is called "Occurrence" and means a loss is covered by the policy in effect on the date of the loss.)
A local independent broker closes his office and joins mine. The possibilities:
- If he cancels his E&O policy, he is losing coverage on all his prior transactions. Experienced agents know this is not a good idea. Problems can rear their ugly heads years after a transaction is closed.
- I could assume liability for his previous transactions. Even if all his agents have been meticulous in all their transactions, do I want to have to review years of old files? No, thank you.
- He purchases "tail coverage", this is a policy issued to a closed company to continue E&O coverage on prior acts.
- Or he continues to maintain his existing E&O policy, even though his company is no longer actively selling.
If all this seems odd, remember to adjust your thinking to the "Claims Made" form of insurance. :-) Remember, with E&O insurance it does not matter if you had insurance in effect on the date the loss occurred. What matters is that you have insurance in effect on the date you first become aware of the claim.
Article with good explanation here: http://www.eqgroup.com/Pdf/ClaimsMade_expl.pdf