what is runoff insurance 
runoff insurance is an insurance policy provision that covers claims made against companies that have been acquired merged or have ceased operations runoff insurance also known as closeout insurance is purchased by the company being acquired and indemnifies exempts from liability the acquiring company from lawsuits against the directors and officers of the acquired company understanding runoff insuranceacquiring a company means taking possession of its assets but also its liabilities including those only be discovered in the future obligations arise for many reasons third parties may feel that they were not treated fairly in contracts investors may feel upset with how the previous directors and officers ran the business competitors may claim infringement of intellectual property rights an acquiring company might demand that the company being acquired purchase runoff insurance to protect itself from these liabilities a runoff policy is a type of claims made policy rather than an occurrence policy the difference in policy type is because the claim may be made several years after the incident that caused damage or loss and occurrence policies provide coverage only during the period that the policy was active the length of the runoff policy referred to simply as the runoff is typically set for several years after the policy becomes active the provision is purchased by the acquiring company and the purchase funds are often included in the acquisition price professionals may also purchase runoff insurance to cover professional liabilities that occur after a business has closed for example a physician who closes their private practice may purchase runoff insurance to protect themselves from claims filed by previous patients this type of policy is typically renewed until the statute of limitations on filing a claim has passed if the business continues to offer services its policies typically extend indemnification making the purchase of a runoff provision unnecessary the following insurance policies should have a runoff provision directors and officers d o insurance fiduciary liability insurance professional liability e o insurance and employment practices liability epl insurance runoff insurance exampleconsider a hypothetical runoff policy written for a term between jan 1 2017 and jan 1 2018 in this situation coverage will apply to all claims caused by wrongful acts committed between jan 1 2017 and jan 1 2018 that are reported to the insurer from jan 1 2018 to jan 1 2023 that is the five years immediately following the end of the policy term the north american runoff reserve in 2021 per pricewaterhousecoopers global insurance runoff survey 2021 compared to 302 billion for the u k and continental europe markets 1special considerationsalthough runoff insurance provisions function similarly to extended reporting period erp provisions there are several differences first erps are typically only for one year terms whereas runoff provisions normally encompass multi year periods second erps are frequently purchased when the insured individual switches from one claims made insurer to another whereas runoff provisions are used when one insured is acquired by or merges with another 