Claims Made vs Occurrence
Understanding the Differences
"Claims Made" vs "Occurrence" policy forms
There are two primary forms
of liability insurance policies - claims-made and occurrence. Most
professional liability insurance, including directors and officers and
employment practices liability insurance, is written on a claims-made basis.
An occurrence policy obligates the insurance company to pay for claims
arising out of occurrences during the policy period
regardless of when the claim is reported. The policyholder is covered for any
incident that occurs during the term of the policy regardless of when the claim
arising from the incident is reported to the company. In some situations the
claim might be made many years after the incident occurred.
A claims-made policy protects an insured against claims or incidents that are
reported while the policy is in force. Normally, a claims made policy provides
coverage for acts occurring prior to the claims-made policy period. Coverage for
acts occurring prior to the policy period is called "prior acts coverage," and
the period prior to the policy period for which claims are covered is called the
prior acts period. Prior acts coverage is usually only provided when a
claims-made policy has been in force immediately prior to the current
claims-made policy on a basis consistent with the prior policy. Prior acts
coverage is defined as "full prior acts", covering acts occurring at any time
prior to the current policy period, or is defined by a "retroactive date."
When
a retroactive date is used, prior acts coverage is provided from the retroactive
date to the current policy period.
"Tail coverage," also called an "extended reporting period," provides protection
for claims that are filed after a claims-made policy has been non-renewed or
canceled. This coverage is optional, and the need can arise if the professional
organization is acquired or goes out of business, or a decision is made not to
purchase insurance. The terms and pricing for tail coverage vary greatly and are
usually defined in the policy.
This information is designed for general
informational and descriptive purposes only. The
precise wording of each coverage is subject to
specific conditions and endorsements of the actual
policy issued. Always read your policy very
carefully!