Georgia Property & Casualty Practice Exam

What can Mercury Manufacturing do to cover claims made after its pollution liability policy expires?

1. Buy an umbrella liability policy.

2. Buy an extended reporting period endorsement.

3. Declare bankruptcy and form a new company.

4. Buy a limited fungi or bacteria coverage endorsement.

The correct answer is: Buy an extended reporting period endorsement.

Mercury Manufacturing can cover claims made after its pollution liability policy expires by purchasing an extended reporting period endorsement, often referred to as a "tail" coverage. This endorsement allows the insured to report and claim for incidents that happened during the policy period but were not reported until after the policy expired. This is particularly important for pollution liabilities, as environmental claims may not surface until long after the event that caused the pollution, meaning that a standard claims-made policy could leave the manufacturer exposed if they are unable to report a claim within the life of the policy. The extended reporting period endorsement extends the time frame for reporting such claims, ensuring that Mercury Manufacturing remains protected against unforeseen future claims related to incidents covered under their previous pollution liability policy. This is a crucial addition for businesses concerned about the long-term implications of potential environmental claims. While other options, such as purchasing an umbrella policy or a limited fungi or bacteria coverage endorsement, might provide additional coverage, they do not specifically address the coverage gap that arises once a pollution liability policy has expired. Declaring bankruptcy and forming a new company would not provide any meaningful coverage for past claims and is not a practical or responsible way to manage liabilities. Thus, the extended reporting period endorsement is the most effective way to manage exposure to