Run‑Off (Tail) Coverage for Directors and Officers (D&O) Liability Insurance: What Boards Need to Know

Directors and officers (D&O) run‑off — commonly called tail coverage or extended reporting periods (ERPs) — is a critical protection when a company undergoes a transaction, winds down operations, or otherwise stops maintaining active D&O policies. For U.S. boards (especially in high‑litigation jurisdictions such as New York, Delaware, California and Texas), understanding run‑off pricing, structure and negotiation levers is essential to manage legacy exposure and preserve personal indemnity protection for current and former executives.

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What is D&O Run‑Off (Tail) Coverage?

Run‑off / Tail Coverage: An agreement extending the time during which claims arising from past acts can be reported under an expired or canceled D&O policy.
Why it matters: Most D&O policies are claims‑made — coverage only applies when a claim is first made and reported during the policy period (or an ERP). Without a tail, executives can face uncovered claims years after departure, particularly following insolvency, M&A or regulatory investigations.

Typical Run‑Off Structures

Short ERP (1–2 years) — cheaper, limited reporting window; often used for private company wind‑downs.
Multi‑year tail (3–6 years) — common for private company exits, sellers in M&A or firms facing regulatory scrutiny.
Perpetual / Unlimited reporting (rare for D&O) — effectively never lapses; usually only available for specific coverages or negotiated corporate indemnity arrangements.
Buy‑side vs Sell‑side approaches: Buyers in M&A often insist sellers purchase seller’s side run‑off; conversely buyers may require representation & warranty insurance instead of tail purchases on the buy‑side. See how to secure continuity in: How to Secure Continuity of Cover: Buy‑Side and Sell‑Side Strategies for Directors and Officers (D&O) Liability Insurance

Key Cost Drivers for Run‑Off Pricing

Run‑off pricing is highly variable. Underwriters price on:

Company size and revenue
Limit required and attachment points
Industry risk (financial services, biotech and cannabis are higher)
Claims history and known incidents
Corporate status (bankruptcy, S‑1 filing, merger)
Requested ERP length

Market reports and broker guidance typically show run‑off premiums as a multiple of the expiring annual premium — the multiple increases with ERP length, prior loss activity and public company status. For a deeper look at pricing mechanics, see: Cost Drivers for Run‑Off Protection: Pricing Tail Coverage in Directors and Officers (D&O) Liability Insurance.

Sources for market context:

Aon and Marsh market briefs discuss ERP multiples and the sensitivity to underwriting history (see links below).

Market Indications — Typical U.S. Ranges (2024 market context)

The following are indicative ranges for U.S. middle‑market and public companies, based on broker market commentary and insurer materials. Your actual quote will vary.

Small private company (revenue < $50M)
- 1‑year ERP: ~0.25x to 1.0x of expiring annual D&O premium
- 3‑year tail: ~0.8x to 2.0x
- 6‑year tail: ~1.5x to 3.5x
- Typical absolute premium: $25,000–$150,000 depending on limit and risk
Mid‑market private company (revenue $50M–$1B)
- 1‑year ERP: ~0.5x to 1.5x
- 3‑year tail: ~1.5x to 3.0x
- 6‑year tail: ~2.5x to 4.5x
Public companies or companies with securities exposure
- 1‑year ERP: ~1.0x to 2.0x
- 3‑year tail: ~2.5x to 5.0x
- 6‑year tail: ~4.0x to 8.0x

Insurers named frequently in run‑off markets: AIG, Chubb, Travelers, Beazley, Zurich. Carrier appetites vary by state and industry; in places like California and New York, claims frequency and defense costs can push pricing to the higher end of ranges.

External market reads:

Aon D&O advisory overview: https://www.aon.com/home/solutions/insurance/financial-risk/directors-and-officers.jsp
Marsh D&O insights: https://www.marsh.com/us/industries/financial/directors-and-officers-liability.html
Carrier reference on D&O offerings (example): Chubb D&O: https://www.chubb.com/us-en/business-insurance/directors-and-officers.html

Practical Negotiation Points for Boards

When your company is seeking run‑off, focus on these negotiation levers:

Limit and tower structure: Consider buying a dedicated run‑off tower (primary + excess) rather than rolling into a single unlimited limit that the buyer provides.
Retroactive / Prior Acts date: Ensure the ERP covers the desired prior acts period. For acquired companies, negotiate the retro date carefully. Learn more: Prior Acts and Retroactive Dates: Managing Historical Exposure Under Directors and Officers (D&O) Liability Insurance
Defense inside vs outside the limit: Where possible, secure defense costs outside the limit for run‑off towers to preserve limit for indemnity payments.
Severability and consent to settle: Carve outs for fraud and certain consent provisions matter — watch claim control clauses closely.
Seller vs buyer allocation: In M&A, insist on clear contractual allocation for run‑off premiums, especially where buyers push to shift legacy risk without paying.

Alternatives and Layering Strategies

Not every organization should buy a multi‑year tail. Alternatives include:

Extended Reporting Period (ERP) limited term — lower cost, shorter exposure window.
Run‑off pools or pooling arrangements — common for private equity portfolios.
Representation & Warranty (R&W) insurance — shifts M&A legacy deal risk; not a substitute for executive D&O protection.
Portfolio/Layered prior acts solutions — mix of insurer limits across years to manage cost. See: Portfolio Approach to Prior Acts: Layered Solutions for Legacy Exposure in Directors and Officers (D&O) Liability Insurance

Quick Checklist for Boards (Ask Your Broker)

What ERP length is marketable for our facts (insolvency, M&A, regulatory exposure)?
What multiple of our expiring premium should we expect for 1, 3 and 6 years?
Which carriers are quoting for our industry in our state (e.g., NY/DE/CA/TX)?
Can defense be allocated outside the limit for run‑off towers?
Are there carve‑outs (known claims, governmental investigations)?
More detailed questions: Checklist for Purchasing Run‑Off Coverage: Questions to Ask Your Broker for Directors and Officers (D&O) Liability Insurance

Comparison Table: ERP vs Full Tail vs No Tail

Feature	Short ERP (1–2 yrs)	Multi‑year Tail (3–6 yrs)	No Tail
Typical cost (relative to annual premium)	0.25x–1.5x	0.8x–8.0x	$0
Best for	Low‑risk closures, small private firms	M&A sellers, companies with litigation exposure	Companies with continuing operations and indemnity
Protection for former directors	Limited window	Extended protection	None — major risk
Negotiability	Moderate	High (structure + price)	N/A

Final Takeaways for U.S. Boards

Run‑off is rarely optional for executives exposed to securities, employment or regulatory claims — lack of tail means personal exposure.
Budget early: run‑off can be material — often multiples of expiring premium and in absolute terms tens of thousands to millions of dollars for larger entities.
Work with experienced D&O brokers and counsel to tailor retro dates, defense allocations and tower structures to your state and industry risks.
Get competitive quotes from carriers active in your jurisdiction (AIG, Chubb, Beazley, Zurich, Travelers) and benchmark against broker market guidance from Aon/Marsh.

External references and further reading

Aon — Directors & Officers insurance overview: https://www.aon.com/home/solutions/insurance/financial-risk/directors-and-officers.jsp
Marsh — D&O liability insights: https://www.marsh.com/us/industries/financial/directors-and-officers-liability.html
Chubb — D&O products and guidance: https://www.chubb.com/us-en/business-insurance/directors-and-officers.html

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