insurance

Zombie Policy

An insurance policy that appears to be terminated or lapsed but continues to generate legal obligations or liabilities. These policies can unexpectedly 'come back to life' years later when claims are filed under them.

Example

“The company thought their old liability policy was dead until a zombie policy from 1995 was triggered by an asbestos claim filed twenty years later.”

Memory Tip

Think 'Zombie = Back from the Dead' - policies that seem dead but can still bite you with claims.

Why It Matters

Zombie policies can create unexpected financial obligations years after you think coverage has ended. Understanding policy terms and maintaining proper records helps prevent surprise liabilities and ensures you're not caught off-guard by old policy obligations.

Common Misconception

People often believe that once they stop paying premiums or receive a cancellation notice, all policy obligations end immediately. However, some policies continue to cover past events or have extended reporting periods that can create ongoing liabilities.

In Practice

A medical practice stopped paying malpractice insurance premiums in 2018, assuming coverage ended. In 2023, a patient filed a lawsuit for treatment received in 2017. The old policy was actually a 'claims-made' type with a 5-year tail period, making it a zombie policy that still covered claims filed within five years of policy termination. The practice faced a $500,000 claim they thought was impossible.

Etymology

Named after zombies from folklore, creatures that appear dead but return to life, this insurance term emerged in the late 20th century to describe policies with similar characteristics.

Common Misspellings

zombi policyzombie policiezombie policeyzombee policy

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