Brief background
Most property & casualty insurance policies are occurrence policies. With an occurrence policy, the policy that is on the risk at the time that a covered act “occurs” is the policy that the claim will be settled under, regardless of when the act is reported (barring policy provisions and/or statute of limitations issues). For most property losses ie such as an auto accident, it is very easy to determine the occurrence date. Same goes for the casualty side of that auto accident; there is a very precise date and time as to when the act occurred. The time frame to report, adjust and settle most of these claim types is fairly short.
Professional Liability Insurance, as well as some other insurance casualty lines do not always have a short claims cycle.
1. The time between when the act occurred and when it is reported can be months or years apart.
2. Or the “act” might span many years, where determining which policy/company is responsible for providing coverage for the covered act can be very difficult to determine.
3. Because of the time frame between when the act occurred and the knowledge of the actual claim to report can be long or the laws or court rulings may have changed it can be difficult for an insurance carrier to know what their true loss costs are for any given policy year if an occurrence policy were used. If an insurance carrier cannot predict its true claims costs for a given line of business, it is unlikely the insurance carrier or industry would provide insurance at a cost that the insurance consumer would want to purchase.
During the liability insurance crisis in the 80’s, this was part of the problem. The availability for casualty insurance for certain lines of business had dried up and/or became extremely costly.
Claims made insurance policies for lines of business such as professional liability insurance for lawyers, accountants, doctors, title agents and other malpractice lines came into being to address these issues. With a claims made policy in its purest form, the covered act needs to occur and the claim needs to be reported in the same policy period. While this concept, might work for some lines of business, particularly for professional liability insurance or malpractice insurance this is not a workable solution.
The use of a “prior acts date” or “retroactive date” solves this issue.
With a prior acts date, the policy that is inforce when the covered act is reported or the “claim made” is the policy form and insurance carrier that will provide the coverage, providing that the covered act occurred after the prior acts date on the current policy.
With claims made coverage, if the insured allows coverage to lapse there is no insurance policy to report future claims to for past acts, even though there was coverage inforce at the time the act occurred. This brings up 2 responsibilities for the insured with claims made coverage:
1. The insured needs to maintain continuous claims made coverage. A coverage “gap” with claims made insurance usually results in the resetting of the prior acts date to the inception date of the new claims made insurance, thus wiping out coverage for all past acts.
2. The insured needs to make sure that at renewal, especially if changing insurance carriers, that the prior acts date that originated on the inception date of 1st continuous claims made coverage is maintained on future renewals and is not shortened.
L Squared Insurance Agency specializes in claims made coverage for Lawyers, Accountants, Title Agencies, and Dentist. Give us a call or send us an e-mail if you have questions or issues about your claims made policy coverage or prior acts date.
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Lee Norcross, MBA, CPCU Managing Director, CEO (616) 940-1101 Ext. 7080 |
