Claims-Made v Occurrence Policy Forms

Claims-Made v Occurrence Policy Forms

People may think all insurance claims are settled using occurrence policy forms. For good reason; homeowners, auto, business owners and workers compensation insurance policies all use occurrence policy forms. With occurrence policies the insurer on the risk at the time the covered act occurred is responsible for paying the claim.  This is true even if the policy at the time has long since expired. But errors & missions (E&O) or malpractice Insurance policies like attorney professional liability insurance or accountant E&O insurance (along with other liability and professional liability Insurance) use a claims-made policy form. Mistakenly assuming a claims-made policy handles claims in the same manner as an occurrence policy can be costly. It may result in a declined claim.

Occurrence form problems with professional liability insurance:

With occurrence policy forms if a covered error or act occurred you report the claim to the insurer that was on the risk at the time the act or error occurred. It seems simple, but unfortunately in the real world it can be a complex answer. If the covered act spanned many years, over many different policy periods, with different insurers, different policy forms, which insurer is responsible and under with policy form? Are all insurers responsible? If so with different policies, how do you settle the claim? Have any laws changed?

Depending on how you answer these questions, you end up with very dramatically different answers for coverage, what policy forms, limits and which insurers are involved. This uncertainty under an occurrence based policy form is not acceptable to insureds or insurers. In the 80s, courts ruled that general liability policies did not exclude pollution coverage. This led to insurers paying claims for years after the policies had expired for a risk not contemplated. To get a reasonably priced insurance policy, insurers want predictability.

Claims-Made coverage form for E&O Insurance policies.

The claims-made policy form addresses the above issues. With claims-made coverage answering these questions determines coverage:

1. Is Claims-Made coverage currently inforce or is there an inforce Extended Reporting Period Endorsement (ERP)?
2. Did the covered act or error occur after the retroactive/prior acts date on the inforce policy?
3. Has there been continuous-claims-made coverage since the act occurred?
4. When was the claim made?

Determining insurer responsibility for the claim and under which policy form is straight forward. The insurer on the risk at the time the claim is made is responsible for the claim. The policy form used is the form on the risk at the time the claim is reported.

Without an active claims-made inforce policy at the time the claim is reported there is no coverage. The insured needs to secure an ERP when ending insurance coverage to cover past acts. Once the claims-made coverage ends so does the obligations of the insurer.

If the insured changes policy limits or deductibles the policy form used is the form when the act(s) was reported. Reducing policy liability limits as the firm winds down could leave the entity underinsured.

Common Claims-Made Policy Forms:

1. Professional Liability Insurance/E&O Insurance (Accountant, Attorney, Medical, Dental, Title Agencies, Miscellaneous E&O)
2. Directors & Officers (D&O)
3. Certain specialized liability policies
4. Cyber Insurance
5. Employment Practices Liability Insurance (EPLI)
6. Fiduciary Liability Insurance
7. Environmental Liability Insurance
8. Excess & Umbrella Insurance

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Lee Norcross, MBA, CPCU
California License # 0D87292
    L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080