E&O tail at closing — the claims-made gap, covered.

The E&O tail is a closing-table line item that a buyer can't skip, because of how claims-made coverage works: the policy pays a claim only if it's active when the claim is reported, so the seller's policy ending at close means every past act becomes uninsured the moment a late claim arrives. The tail fixes that — but it's surrounded by mechanical traps and a deadline, and getting it right is part of a clean close rather than a post-close scramble.

§ 01 · The pricing bandsWhat the tail costs.

The tail is priced as a multiple of the annual E&O premium, scaling with the reporting window: roughly 75%–100% for one year, 150%–200% for three, 175%–250% for five, and 250%–300% for unlimited or lifetime. The worked example puts it on the closing statement: an $8,000 annual premium times 175% for a three-year tail is about $14,000 — a single, real expense at closing that has to be budgeted, not absorbed as a surprise. And there's a hard deadline: the purchase window is 30–60 days post-termination on most claims-made policies, so miss it and the option to buy the tail disappears entirely, leaving the gap permanently open. The deeper diligence treatment of the tail — the retroactive-date trap and the allocation cap — is in E&O tail coverage.

§ 02 · Reporting, not limitsThe critical mechanical rule.

The most important mechanical rule about a tail is also the most misunderstood: it extends the time during which a claim can be reported, but it does not refresh the policy's aggregate limits. So a tail attached to a policy that's already paid out part of its aggregate carries only the remaining capacity — a $1M policy with $400K paid in the final year gives the tail $600K to work with across the entire extended window, not a fresh $1M. For a buyer, this means reading the policy's loss history before relying on the tail's headline limit, because a depleted aggregate on a high-claim agency leaves a thinner backstop than the policy face suggests. The tail buys time, not capacity — and on an agency with an active claim history, the difference can be material.

§ 03 · The prior-acts alternative and who paysTwo structural choices.

There are two ways to close the claims-made gap, and two patterns for who funds it. The standard is the tail on the seller's expiring policy. The alternative is a prior-acts endorsement attached to the buyer's new E&O policy, which covers acts before the new policy's effective date — a different structure that must be explicit in the purchase agreement, since it shifts the coverage onto the buyer's program rather than extending the seller's. On funding, three "who pays" patterns recur: seller pays (the most buyer-friendly, common when the E&O loss history raises concerns, since the historical conduct is the seller's), buyer pays (sellers prefer it — it converts a contingent post-close obligation into a priced deal cost), and a split (often 50/50 or tiered by length). The choice between a tail and a prior-acts endorsement, and the allocation of who pays, are both negotiated at the LOI stage rather than discovered at closing — which is what keeps the gap from becoming a closing-week scramble.

§ 04 · Loss-run signals and APA backstopsReading the history, structuring the protection.

The loss runs that price the tail also carry diligence signals worth reading across a 5+ year window — and a shallow loss run (five years, few entries, no detail) isn't automatically reassuring, especially on a high-churn or high-complexity book. Four signal categories matter: frequency (five or more claims a year on a modest agency points to systemic documentation, coverage-recommendation, or certificate-issuance issues that travel with the agency), severity (a single large open claim warrants a carve-out from the general indemnification), repeat patterns (a specific carrier, line, or producer concentration signals continuing exposure), and disputed claims (reserved-rights and aggregate-exhausted claims signal systemic coverage problems or a difficult customer base). Where the signals warrant, two purchase-agreement backstops protect the buyer beyond the tail: a specific E&O indemnity (pre-closing E&O pulled out of the general indemnification with its own survival matching or exceeding the tail and its own escrow tranche) and a run-off cap (the seller's E&O indemnification capped at a defined amount, typically the tail aggregate plus a buffer, with the tail funded as the first-recovery layer). Read the history, buy the right tail within the window, and back it with the APA structure where the loss runs demand it. The carrier-approval workstream that runs in parallel at closing is in carrier change-of-control approval.

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