Switching Insurers? Don't Forget the Tail

When a strata corporation changes insurers, the focus is usually on premiums, deductibles and limits for the year ahead. What often gets missed is the year behind: what happens to a claim that arises from something during the old policy, but isn't reported until after that policy has ended?

The answer depends on something called "tail" coverage, formally an extended reporting period. It used to be generous. Today it is often just 90 days, and that gap can leave a strata corporation exposed.

How it used to work

For years, tail coverage was typically extended for seven years after a policy ended. That figure wasn't arbitrary. It reflected the old six-year limitation period for many claims, plus roughly one more year to allow for a lawsuit to make its way through the courts and onto the insured's desk.

In practice, that meant if you switched insurers, your old policy still stood behind you for anything that happened on its watch. Most strata councils never had to think about it.

What's changed

Many insurers now provide only a 90-day extended reporting period once a policy ends. After those 90 days, the old policy generally will not respond to a new claim, even if the events behind it happened while that policy was in force.

This matters most for claims-made coverage, such as directors and officers (D&O) liability, where the policy that responds is the one in place when the claim is made, not when the incident occurred.

Why 90 days isn't enough

Claims rarely arrive quickly. A claimant has time to discover the problem, time to decide to sue, and then time to serve the strata corporation once the lawsuit is filed.

That last step is the one most people don't know about. In BC Supreme Court, a notice of civil claim can be served up to one year after it is filed. So a lawsuit could be started well within the limitation period and still not reach the strata corporation for another twelve months.

Consider how this can play out:

1. A strata corporation switches insurers. The old policy's 90-day reporting window begins.
2. An owner or third party has a grievance about a council decision made under the old policy, but takes no action yet.
3. The 90 days pass. The old policy no longer accepts new claims.
4. Months later, the claimant files a notice of civil claim.
5. Up to a year after that, the strata corporation is served, and learns of the claim for the first time.

By step 5, the old insurer's window closed long ago, and nobody on council could have reported a claim they didn't know existed.

Why the new insurer may not pick it up

It's natural to assume the new policy will simply take over. Often it won't. Insurers price their coverage on the risk they agree to take on from the day they start, and they are unlikely to cover claims arising from events before they took over the policy.

The result is a gap: the old insurer's reporting window has closed, and the new insurer considers the claim outside its coverage. The strata corporation, and potentially its council members, can be left to respond on their own.

What to ask before you switch

Before council approves a change in insurers, ask your broker:

• How long is the extended reporting period on our current policy once it ends?
• Can we purchase a longer tail, and for how many years?
• What will the extended coverage cost?
• Does the new policy cover claims arising from events before its start date, and are there any exclusions for prior acts or known circumstances?
• Are there any incidents, complaints or disputes we should report to the current insurer before the policy ends?

That last question is worth emphasizing. If council is aware of a potential claim, reporting it to the current insurer before the switch can help preserve coverage.

The bottom line

Extending tail coverage comes at an extra cost, and every council has to weigh that against its budget. But the risk it addresses is real and hard to see coming: a claim from the past, served after the old policy's window has closed, that the new insurer won't touch.

For many strata corporations, paying for a longer tail is a reasonable price for protection against exposures nobody knows about yet. Whatever council decides, it should be a deliberate choice, not a gap discovered after the fact.

This article is general information only and is not legal or insurance advice. Councils should discuss their specific coverage with a licensed insurance broker and, where appropriate, legal counsel.