Insurance Curator When you exit a company — by sale, merger, bankruptcy, or resignation — your exposure to legacy claims doesn’t end. In the USA market (notably New York, Delaware, California/San Francisco, and Chicago), negotiating robust run‑off (tail) protection under the company’s D&O program is one of the most important steps an executive can take to preserve personal assets and career mobility.
This guide explains the specific clauses to request, real‑world pricing context, and negotiation tactics so you can leave with certainty instead of risk.
Why run‑off matters (quick primer)
- D&O insurance is typically written on a claims‑made basis. Coverage responds only if the policy in effect when a claim is made includes the insured and the relevant retroactive date.
- After an exit, the company may cancel policies or changes in control can create gaps. A run‑off or Extended Reporting Period (ERP) ensures claims arising from prior acts are still reported and defended.
- The need is acute in high‑litigation jurisdictions such as New York and Delaware, and for companies with public claims history (class actions, SEC investigations).
For background on triggers and timing, see Mergers, Bankruptcies and Resignations: Events That Trigger the Need for Directors and Officers (D&O) Liability Insurance Run‑off.
Core clauses every departing executive should request
Below are the must‑have run‑off provisions — practical, negotiable language and what to watch for.
1. Extended Reporting Period (ERP) / Tail Purchase Right
- Request: Unconditional right to purchase an ERP for a specified period (commonly 3, 6 or 12 years, or perpetual for life‑time protection).
- Why: Allows claims made after exit (but arising from acts during tenure) to be reported.
- Ask for: A formula for premium (see pricing below) and a fixed election period (e.g., 90 days after exit) to buy the ERP.
Sample wording:
- “The Executive shall have the unilateral right, exercisable within 90 days after termination of service, to purchase an Extended Reporting Period for up to X years at the then market rate.”
2. Retroactive Date Preservation
- Request: Preservation of the original retroactive date on any run‑off or successor D&O policy so prior acts are covered.
- Why: A shifted retroactive date can eliminate coverage for longstanding conduct.
3. Run‑Off Continuity for Subsidiaries & Acquired Entities
- Request: Coverage that continues for acts of any subsidiary or entity for which the executive had oversight.
- Why: Executives are often responsible for lines of business or acquired divisions that remain exposed after M&A.
4. Defense Outside the Limit (DOL)
- Request: Defense costs be paid outside the policy’s limit for any claims reported during the run‑off.
- Why: Preserves limits for indemnity payments; particularly valuable in high‑severity matters.
5. Severability / Non‑Imputation Clause
- Request: Explicit severability so one executive’s conduct won’t void coverage for others.
- Why: Prevents coverage denial for innocent executives when another is alleged to have wrongdoing.
6. No‑New‑Claims Carve‑Back / Prior Acts Carve‑Back
- Request: A detailed definition of “prior acts” and carve‑backs for claims based on previously disclosed incidents.
- Why: Clarifies whether a claim that was informally known but not reported is excluded.
7. Buy‑Side vs Sell‑Side Run‑Off Options (for M&A)
- Request: Clear allocation — who (buyer, seller, or target) is responsible for tail premiums and whether the buyer will assume defense control.
- Why: Negotiating the party responsible for purchasing the ERP can dramatically affect your personal exposure. See How to Secure Continuity of Cover: Buy‑Side and Sell‑Side Strategies for Directors and Officers (D&O) Liability Insurance.
8. Indemnification & Advancement Confirmation
- Request: Corporate indemnification and advancement obligations survive termination and are subordinate to insurer subrogation rights.
- Why: Ensures the company remains contractually obligated to support defense costs where permitted.
Practical negotiation tips
- Start with your target: aim for a minimum 3‑year ERP, more for public company exits (5+ years).
- Use escrow or deal holdbacks to secure premium payment where required.
- Leverage employment agreements or separation agreements to lock in ERP purchase rights and indemnity.
- Engage a broker experienced in run‑off (tail) placements and D&O market dynamics — brokers at Marsh, Aon, and Willis Towers Watson are common advisers for complex transactions.
For a checklist to use with your broker, see Checklist for Purchasing Run‑Off Coverage: Questions to Ask Your Broker for Directors and Officers (D&O) Liability Insurance.
Pricing expectations (USA market, 2023–2025 context)
Pricing varies by company size, public/private status, claims history, and sector. Typical market ranges:
- Private middle‑market company (annual D&O premium: $25,000–$100,000)
- ERP/tail: roughly 100%–200% of the expiring annual premium for a multi‑year run‑off.
- Public company or higher litigation risk (annual D&O premium: $250,000–$1,000,000+)
- ERP/tail: 150%–400%+ of expiring annual premium depending on severity, current market conditions, and regulatory exposure.
Carrier examples (indicative, subject to underwriting):
- Chubb, AIG, and Travelers routinely underwrite D&O and offer ERP solutions. Underwriters often price single‑year reporting extensions at 30%–100% of premium per additional year or multi‑year ERPs as a multiple of 1–4x the expiring premium depending on risk.
- Chubb D&O overview: https://www.chubb.com/us-en/business-insurance/directors-and-officers-liability-insurance.html
- AIG D&O overview: https://www.aig.com/business/insurance/d-o
Broker market commentary:
- Marsh and Aon market reports document rising D&O rates and ERP premium volatility across 2020–2024. See general market insights at Marsh: https://www.marsh.com and Aon: https://www.aon.com for current market commentary and benchmarks.
(These figures are representative ranges; always obtain live quotes from brokers and carriers for an accurate premium.)
For a deeper dive into pricing drivers, see Cost Drivers for Run‑Off Protection: Pricing Tail Coverage in Directors and Officers (D&O) Liability Insurance.
Comparison: Key run‑off options at a glance
| Clause / Option | What it does | Negotiation priority |
|---|---|---|
| ERP / Tail Purchase Right | Keeps reporting window open post‑exit | High |
| Retroactive Date Preservation | Ensures prior acts remain covered | High |
| Defense Outside Limits | Defense costs don’t erode indemnity limits | High |
| Subsidiary Run‑Off | Extends coverage to subsidiaries/lines | Medium |
| Severability | Prevents one exec’s conduct from voiding cover | High |
| Indemnity survival | Corporate indemnification continues | High |
| Seller vs Buyer payment | Allocates who pays tail premium in M&A | High |
Final checklist before you sign
- Confirm the ERP election window and premium formula in writing.
- Verify the retroactive date is identical to the date during your tenure.
- Obtain written commitment that defense costs are outside the limits (if possible).
- Secure survival of indemnification and advancement clauses in your separation agreement.
- Ask for proof of insurer acknowledgement that the ERP or run‑off will apply to you (endorsement or side letter).
For tactical guidance on prioritizing run‑off vs alternatives (extended reporting periods, layered prior acts), review Alternatives to Full Tail: Extended Reporting Periods and Run‑off Structures in Directors and Officers (D&O) Liability Insurance.
Negotiate run‑off terms proactively — with precise clauses and a broker who understands D&O tail pricing in New York, Delaware, California, and Chicago markets — and you significantly reduce the chance of facing uncovered legacy claims after you leave. For complex exits, start negotiations early and document every commitment in your definitive agreements.