Claims made versus occurrence policy

Updated: 9/14/2023
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When a policy is written on a "claims-made" basis, it means that the policy in force at the time a claim against the insured is asserted applies to the claim, regardless of when the occurrence forming the basis of the claim occurred. Correlatively, the policy must be in force at the time that the claim is make for coverage to apply. The insured must also timely report it and follow all conditions precedent outlined in the policy while it is in force. There is a variant of a claims made policy, which may be set forth in an endorsement to the policy, that provides for a "retro" date. This means that the policy will apply to occurrences that took place prior to the inception of the policy (if they otherwise fall within the ambit of coverage).

With an "occurrence" based policy, even though the policy may have expired as of the time the insured received notice of the claim, the policy will afford coverage if the claim otherwise comes within the scope of coverage. This type of policy also has claims reporting provisions to which the insured must adhere, as well as a cooperation clause. The latter means that the insured must cooperate with the insurer (and the attorney it selects to defend that claim) in the defense.

Both forms of coverage have advantages and drawbacks, depending on the circumstances. It is difficult to predict whether, in any particular instance, it will be advantageous to insure using one form or the other. Only in hindsight can a judgment be made.

Advantages of "occurrence" policies

  • "Occurrence" policies are sometimes like "money in the bank," in that you can go back to old policies, years after they have lapsed and put a claim against them for incidents that happened while they were in force. Old policies should never be thrown away. They should be kept in a place of safekeeping.
  • You don't have to worry about canceling an "occurrence" policy and moving to a different insurer. Coverage remains locked in for incidents occurring while the policy was in force, as long as the insurer is in business. In contrast, once a "claims-made" policy is cancelled, it is possible that purchasing insurance for past events will become difficult, expensive or perhaps not possible.
  • Sometimes courts will find occurrences in successive policies if there is continuing harm. This can have the effect of accumulating limits over a period of years. With "claims-made," only one limit applies; that in force when the claim is actually made.

Disadvantages of "occurrence" policies

  • Insurance companies that wrote policies in previous years may no longer be in business. With "claims-made" policies, the insurer is much more likely to be around when a claim becomes payable. The length of time between an occurrence and resolution in court can be 20 or more years. An insurer in business 20 years ago may not be in business today. The only way to mitigate this risk with "occurrence" insurers is to change to a different one every few years so that you do not keep "all your eggs in one basket."
  • The limits on an "occurrence" policy are likely to be inadequate if a claim is made twenty years after a policy has expired. With "claims-made" it is easier to arrange a limit which is adequate for today's exposures.

For malpractice exposures written on an "occurrence" basis it is important to arrange limits which are somewhat more than is necessary in order to meet tomorrow's exposures. On a "claims-made" basis, one does not need to project twenty years or more into the future when setting limits; 7 years is usually the longest time it takes for a case to go through the court system, so even though you still need to project into the future, the length of time is much less.

Advantages of "claims-made" policies

  • Limits can be predicated on today's exposures more accurately than with "occurrence" policies, so there may be less of a likelihood of being underinsured.

Disadvantages of "claims-made" policies

  • Coverage is triggered by an actual claim for damages, not a notice of an "occurrence" or "incident." However, the date of the occurrence or incident must be more recent than the retroactive date of the policy. This retroactive date determines the cut-off date for claims: if the incident occurred before the retroactive date, the insurer has no obligation and the insured no coverage. While the claim has to be made during the policy period, the occurrence which gave rise to the claim has to fall after the retroactive date of the policy. A "claims-made" policy wording covers as follows:

This insurance does not apply to "bodily injury" or "property damage" which occurred before the retroactive date, if any, shown in the Declarations.

A "claims-made" policy can have:

  • No retroactive date (the broadest coverage).
  • A retroactive date that pre-dates the policy inception date (this may range from days to years). Ideally, it should go back at least to the expiration date of your last "occurrence" policy. If it goes back further it can be designed to provide top-up cover in the case of different limits.
  • A retroactive date that is the same as the policy inception date - this is the most limited coverage and excludes any claim for damages that occurred prior to the policy inception. It is acceptable only if prior to this policy "occurrence" coverage was in force or full "tail" coverage has been purchased on any previous "claims-made" policy.

Ideally, you want no retroactive date or one that includes the entire period that you have had "claims-made" coverage. Anything less makes you effectively self-insured for any claims for injuries or damage that occurred during prior claims-made policy periods which you have not reported to your insurer at the time of the occurrence (unless such claims are covered by supplemental "tail" coverage).

  • The first claim for damages determines which policy applies. For example, if a person first makes a claim for medical payments in 1986, then files for additional damages in 1988, both claims activate the 1986 claims-made policy.
  • With "claims-made" basis of coverage, should the policy ever be allowed to lapse or be cancelled, the insured is generally given the option of purchasing coverage, for a stated period following the expiration of the policy (extended reporting period). Any "claims-made" during this extended reporting period month period would then be covered if it otherwise comes within the scope of coverage. With "occurrence" policies you can be less concerned with coverage lapses or insurer changes.
  • If coverage terms ever become more restrictive on subsequent renewal of a "claims-made" policy, the new terms apply retroactively to the original retroactive or inception date.
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Q: Claims made versus occurrence policy
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Why is tail coverage in a claims made policy important?

Claims made policies must have an occurrence occur and be reported to the carrier within the policy period. The tail protects against claims made subsequent to the effective termination date of the occurring policy period.

What is the difference between a claims made and occurrence general liability policy?

Claims Made vs OccurrenceCommercial General Liability and other types of Personal Liability policies are generally "Occurrence" policies. This means "losses that occur during the policy term" are eligible for claims servicing. The policy active at the time of the loss is the policy that would address coverage. Professional Liability Policies are generally "Claims Made" policies. This type of policy offers coverage for "claims made during the policy term". An injury that occurred long before the policy became active could still be covered based on the retro active coverage date.

What is the difference between a full occurrence policy vs a full occurrence with manifestation vs occurrence with manifestation and sunset clauses?

Claims Made Vs Occurrence Policies There are two primary forms of liability insurance policies - claims-made and occurrence policies. 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. This leads to uncertainty for both the insured and the insurer.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.

Can someone tell you what exactly is a Manifestation occurrence Form Liability coverage And how it is different pro or con to a claims made policy?

* The occurrence policy is designed to cover occurrencesthat take place during the policy period. * The claims made policy is designed to cover claims that are reported during the policy period. * The manifestation occurrence policy is designed to cover occurrences that first manifest during the policy period. The occurrence policy has been around for centuries, but faced challenges in the 1900's due to enormous claims arising out of occurrences that were ongoing or continuous in nature. Claims Made and Manifestation Occurrence policies were created in response to these challenges. To explain the introduction of Claims Made and Manifestation policies, let's first look at the problems that Occurrence policies faced in the 1900s. Imagine that an insurance company writes a $1 Million liability insurance policy for a coffee shop and this policy renews every year from 1940 to 1970 where $1 Million is the most they will pay during the policy period (aggregate limit) and the most they will pay for any one occurrence (the per occurrence limit). The insurance company probably thinks that their liability exposure for insuring the business is limited to a maximum of $1 Million and they should collect the appropriate premium to offset this risk. William and Edith visit the coffee shop for a cup of coffee every morning for 30 years. If they slip and fall or have a horrible coffee incident in 1965, the most the insurance company should have to pay is $1 Million because it would be one bodily injury occurrence during one policy (1965) and the maximum limit for this is $1 Million. But. . .what if in 1971 we learn that the coffee shop has been filled with asbestos for the past 30 years and William and Edith are dying of cancer and it is determined that their exposure to the coffee shop's asbestos is the cause of their cancer. In what year did the occurrence take place? Didn't it take place in 1940 and 1941 and 1942 and in every year in which they were exposed to the asbestos at the coffee shop over the past 30 years? Suddenly, the insurance companies (and courts) realized that this is not a $1 Million claim, but perhaps 30 separate $1 Million claims because we are looking at 30 policies each designed to cover occurrences that take place during a policy period. This is where the Claims Made and Manifestation Occurrence Policies come into the story as well as an introduction to a complete asbestos exclusion to just about all occurrence policies. Whereas the occurrence policy mentioned above might have to pay $30 Million under 30 separate policies, a $1 Million Claims Made policy would pay only $1 Million because that is the maximum amount that the insurance company would pay for any claims during that one year period when the claim is reported. Once the Claims Made policy ends, there is no coverage unless an extended reported period or "tail" is purchased to cover claims into the future. Therefore, in the example above, if the coffee shop had a Claims Made policy every year and the coffee shop closes in 1970 and there is no coverage in 1971 when the claim is filed, there is no insurance coverage unless they purchased a coverage extension. The manifestation occurrence policy would also only pay $1 Million because the occurrence could only first manifest itself during one policy. Different policies might have different definitions of "manifest" including something like "to become apparent to a common observer." However manifest is defined, it is clear that it can only FIRST manifest once and so only the policy in which it first manifests will have an obligation to pay. If, in the example above the bodily injury is first manifested during 1965, the 1965 policy would be the only manifestation occurrence policy that will pay for the bodily injury occurrence. If it manifests itself again in 1966, this would not be the first manifestation of the occurrence and the 1966 policy would have no obligation to pay. Notice that in the example of the occurrence policy, it did not matter when the claim was reported or when the coffee was poured. What mattered is when the occurrence took place. The occurrence policy insuring agreement states that they will pay for occurrences that take place during the policy period. PERIOD. It is true that your policy might have products and completed operations, but again, the occurrence form insuring agreement states that it will pay for occurrences that take place during the policy period. PERIOD. If an insurance agent tells you that you are covered in the future with your occurrence policy, ask for this in writing along with a copy of the agent's own professional liability insurance policy because this may be the only policy that will provide you with future coverage.

Can someone tell you what exactly is a Manifestati?

A Manifestati is an intentionally misspelled version of "Manifestation," which refers to the act of bringing something into reality through thoughts, beliefs, and actions. It is often associated with the Law of Attraction and the belief that focusing on positive thoughts can attract positive outcomes into one's life.

Can you explain the difference between an occurrence form policy and a claims-made policy and when I need a tail policy?

If you need more information on your limits of liability make sure you check your reports for how much your policy has been used in the past year. Also, make sure you speak with the company who holds your insurance policy to get their advice.

After closing down a construction company.. do you need to continue to maintain liability insurance coverage for potential claims from the past?

The type of policy you have will determine if you need to keep coverage in place or not. There are occurrence forms, which cover situations that occur during the policy period, and there are claims made policies, which cover claims that are made during the policy period. Claims made policies may cover situations that happened before your policy started. Either way, there is a statute of limitations on how long someone has to make a claim against you. This statute varies from state to state, it is recommended that you check with the department of insurance. Usually it is 1 to 2 years.

Claims made policy?

"Claims Made Policy" - The Insured is indemnified in case a claim arises during the policy period, no matter when a claim may arise, the Policy pays the insured for the Claim, provided the policy is active since its retroactive date(inception date).

What does retro active date mean in an insurance policy?

The retroactive date is the date from which coverage is deemed valid. Retro active dates are most common in professional lines ( claims Made ) policies and indicate the beginning coverage date from which there has been no lapse. You will not find a retroactive date on an occurrence policy

What is definition of retro date on insurance policy and prior and pending litigation date?

These are dates used in claims made insurance.Retro date - Policy covers any claim alleging facts occurring after this datePrior & Pending Date: Covers all claims made after this date (no coverage for claims known at policy inception)

On an occurrence based policy if insured sales his commercial property 11012002 and a liability claim is reported 152007 for a slip fall that took place on 5-15-02 would there be coverage under the l?

This question cannot be answered, because the policy period is unknown in this story problem. In an occurence based liability policy, the insurance will pay on all claims that were caused by events that orrurred during the policy period regardless of when the claims are made. The date that the property was "sold" is immaterial to the question.

What is tail coverage?

This supplemental insurance covers incidents that occurred during the "active" period of a claims-made policy but are not brought as claims against an insured, nor reported to the insurer, by the time the claims-made policy has been terminated. Needed at various times including when leaving a claims-made carrier, upon the decision to change claims-made carriers, at the time of retirement, or due to death or total disability of the member. Tail coverage is purchased from an insured's previous claims-made carrier.