{"id":6073,"date":"2023-11-18T13:00:00","date_gmt":"2023-11-18T13:00:00","guid":{"rendered":"https:\/\/businessyield.com\/ins\/?p=6073"},"modified":"2023-11-17T16:50:23","modified_gmt":"2023-11-17T16:50:23","slug":"claims-made-and-occurrence-what-is-the-difference","status":"publish","type":"post","link":"https:\/\/businessyield.com\/ins\/insurance-guide\/claims-made-and-occurrence-what-is-the-difference\/","title":{"rendered":"Claims Made and Occurrence: What Is The Difference?"},"content":{"rendered":"

Claims made and occurrence insurance policies differ both in coverage and cost. The key difference between the two is in the mechanism the policy uses for activating coverage, that is, what needs to occur, and when, in order for a claim to be considered for coverage.<\/p>

Insurance buyers need to be aware that the mechanism for activating coverage behind an occurrence policy is completely different from that of a claims made policy. Without understanding how each type of policy works, insureds may be left without insurance coverage at the time of a loss. <\/p>

It is also imperative for brokers that they can explain the coverage implications of each type of policy and for the insured to know what type of coverage they have in place.<\/p>

Understanding claims made policies<\/span><\/h2>

A claims made policy refers to an insurance policy that provides coverage when a claim is made against it, regardless of when the claim event occurred. This is a popular option for when there is a delay between when events occur and when claimants file claims. However, the policy only covers claims made while the policy is active. <\/p>

Businesses often carry claims-made policies or occurrence policies, which extend coverage for claims made on inactive policies if claim events occurred when the policies were active.<\/p>

For example, these policies are often used to cover the potential for mistakes associated with errors and omissions (E&O) in financial statements. They are also used to cover businesses from claims made by employees, including wrongful termination, sexual harassment, and discrimination claims.<\/p>

Claimants may make claims against a policy months after the event of the claims takes place. This type of liability is referred to as employment practices liability and may also cover the actions of directors and officers of the business.<\/p>

Insurance companies may also offer claims-made and reported policies, which most find less desirable than a standard claims-made policy because claims must be reported during the policy period to be covered. This reduces the amount of time that a business can expect to be covered, which can be a problem in situations where many months pass between the claim event and the claim filing.<\/p>

What is an occurrence-based policy?<\/strong><\/h2>

With an\u00a0occurrence-based policy, you\u2019ll be protected if the loss happened during your policy timeframe. As long as you were insured when the incident occurred, you can file a claim with your insurer. Occurrence coverage typically accommodates \u201clong-tail\u201d events \u2013 situations that don\u2019t produce lawsuits or claims right away.<\/p>

General liability insurance,\u00a0commercial auto insurance, and\u00a0umbrella liability insurance\u00a0are the most common examples of occurrence-based policies, as they typically are needed for longer protection. <\/p>

For instance, if you get into a work-related car accident while your policy was active, but don’t notice one of the effects of the accident until years later, you could still file a claim against your insurance even after your policy expired.<\/p>

Key provisions that differentiate a claims made policy from an occurrence policy<\/strong><\/span><\/h2>

Every insurance policy comes with rights and obligations for both the insured and the insurance company. There are some key provisions in a claims-made policy that you will not find in an occurrence policy, and they deserve extra attention. <\/p>

These provisions are part of the mechanism that makes claims-made policies work for the insured and for the insurance company.<\/p>

Warranties<\/strong><\/h3>

Claims made policies may contain a warranty statement in the application questionnaire or in the policy itself. Give warranties the attention they deserve. A warranty may read like this:<\/p>

\u201cno person or entity proposed for coverage is aware of any act, error or omission which might result in a claim\u201d,<\/em><\/p><\/blockquote>

The applicant is given the option to answer \u2018Yes\u2019 or \u2018No\u2019.\u00a0 Omitting facts or information can result in coverage disputes or a claim denial. The insurance company may even rescind the policy. It is wise to work with counsel and your insurance broker to disclose any incidents or report any potential claims.\u00a0<\/p>

Retroactive Date<\/strong><\/h3>

If your claims made policy has a retroactive date, you have a cut-off date after which acts are covered. Any acts that occurred before the retroactive date will not be covered. Check the retroactive date on your declarations page at policy renewal and, particularly, when replacing coverage. Avoid resetting the retroactive date as a reset date essentially removes coverage for any past acts. <\/p>

Some insurance companies provide \u201cfull prior acts coverage\u201d. This means there is no retroactive date and coverage is available for all past acts as long as the policy is active. <\/p>

Claims reporting requirements<\/strong><\/h3>

Claims made policies have strict requirements concerning when a claim should be reported to the insurance company. There is also the difference between claims-made policies and claims made and reported policies. Claims-made and reported policies require that both the claim and the reporting of the claim (by the insured to the insurer) occur during the policy period. <\/p>

This type of policy reporting requirements will vary depending on the insurer. Nevertheless, the expectation is typically for the insured to report the claim \u201cas soon as practicable\u201d. Alternatively, the policy may give a specific window of time in which the insured can report the claim after it has been made.<\/p>

Extended reporting period<\/strong><\/h3>

Tail exposure is always something to keep in mind when purchasing a claims made policy. This doesn\u2019t mean an insured has to purchase a policy perpetually. The insurance market offers a solution for tail exposure called an extended reporting period or \u201cERP\u201d. ERP covers that tail exposure by granting a set amount of time after the policy has ended, in which to report claims. <\/p>

ERPs are commonly purchased for anywhere from 1 to 6 years.<\/p>

Note, though, that an ERP is not the same as a policy renewal. An ERP does not cover any wrongful acts\u00a0that occur after the ERP is executed. Coverage applies only to claims that are made for\u00a0acts<\/em>\u00a0that occurred during the policy period prior to the ERP.<\/p>

Reporting potential claims<\/strong><\/h3>

What should an organization do if it becomes aware of a potential claim but the claim is yet to be received? Some policies specifically state that they will accept a detailed written notification of an anticipated claim as a reported claim.  However, the notification must provide sufficient information. A potential claim notification must include specifics such as:<\/p>