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🔒 '''Runoff coverage''' is [[Definition:Insurance | insurance]] protection that remains in effect for [[Definition:Claim | claims]] arising from events that occurred during an expired or cancelled policy period, even though no new policies are being written or renewed. This concept is particularly relevant in [[Definition:Claims-made policy | claims-made]] lines of business — such as [[Definition:Directors and officers liability insurance (D&O) | directors and officers liability]], [[Definition:Errors and omissions insurance (E&O) | errors and omissions]], and [[Definition:Professional liability insurance | professional liability]] — where a gap between the policy's expiration and the eventual reporting of a claim could leave the insured exposed. Runoff coverage bridges that gap by extending the reporting window, sometimes for a defined period (such as three or six years) and sometimes indefinitely.

📝 A common scenario involves a company being acquired through a merger or acquisition. The target company's existing D&O policy may not survive the transaction, yet former directors and officers remain exposed to lawsuits tied to decisions made before the deal closed. To address this, the acquiring entity typically purchases a runoff policy — often called a "tail policy" — that covers claims reported after the transaction date but stemming from pre-closing acts. The [[Definition:Premium | premium]] for this tail is usually paid as a lump sum at inception, and the policy's terms, [[Definition:Retention | retentions]], and limits are negotiated in the context of the deal. [[Definition:Underwriter | Underwriters]] evaluate the target's claims history, industry, financial condition, and any known circumstances that might give rise to future claims when pricing the coverage.

🛡️ Neglecting to secure adequate runoff coverage can expose individuals and organizations to significant uninsured liability — a risk that becomes especially acute in litigation-heavy sectors like financial services, healthcare, and technology. For [[Definition:Insurance carrier | carriers]] and [[Definition:Reinsurer | reinsurers]], runoff portfolios also present a distinct management challenge: the liabilities may persist for years, requiring ongoing [[Definition:Reserving | reserve]] monitoring and [[Definition:Claims management | claims administration]] long after the original [[Definition:Underwriting | underwriting]] team has moved on. Specialized [[Definition:Run-off management company | run-off management companies]] often step in to handle these books, ensuring that claims are resolved efficiently while the remaining reserves are managed to their natural expiry.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Claims-made policy]]
* [[Definition:Tail coverage]]
* [[Definition:Extended reporting period (ERP)]]
* [[Definition:Run-off management company]]
* [[Definition:Directors and officers liability insurance (D&O)]]
* [[Definition:Merger and acquisition (M&A) insurance]]
{{Div col end}}

Definition:Runoff coverage - Revision history

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