Claims Made vs. Occurrence Coverage

By Carter McAuley, Brokerage Service Manager

On a daily basis agents deal with policy language they must explain to their clients. Understanding this wording is crucial in making sure insureds know exactly what they are getting for the premium they pay. Knowing the differences between how Claims Made and Occurrence policies respond to a loss is an important concept to grasp in order to successfully advise your insureds. Below is a general overview of both forms:

Claims Made Coverage:

  • The trigger of coverage is a claim being made and reported during the policy period; therefore, insurance coverage usually only applies during the policy period or subsequent extended reporting periods.
  • With many Claims Made forms, four dates are important to remember:
    1. The date the injury occurs.
    2. The date the work was performed.
    3. The policy effective date.
    4. The retroactive date. The “Retroactive Date” is typically the date on or after which the work that gave rise to the loss must be performed. In Site Pollution forms, it is often the date after which a pollution release or event must have occurred.
  • Claims Made coverage typically applies to a loss only if:
    1. The loss takes place in the coverage territory arising out of the insured’s work.
    2. The insured’s work did not occur before the Retroactive Date shown in the Declaration or after the end of the policy period.
    3. The claim(s) or suit(s) is first made against any insured during the policy period.
  • A Claims Made policy typically includes an automatic as well as an optional Extended Reporting Period (ERP). This time period only provides for additional time to report a claim that occurred between the retro date and end of the policy term. It does not provide for an extension of coverage.
  • If an insured cancels the coverage or changes to an Occurrence policy, they would need to be sure there is “tail” coverage on the Claims Made policy or “nose” endorsement on the new Occurrence form in order to pick up the retro date on the expiring Claims Made policy.
  • If an Insured renews coverage on another Claims Made Form, they would have to be sure to keep the retroactive date from the expiring policy. Failing to do this can dramatically reduce the insured’s coverage, and is one of the most significant errors agents make.

Occurrence Coverage:

  • Generally, an Occurrence form will respond as long as the injury or damage occurred during the policy period, regardless of when the claim is brought.
  • Occurrence coverage typically applies to a loss only if:
    1. The loss occurs during the policy period.
    2. The loss takes place in the coverage territory.
    3. The loss arises out of the insured’s work.
  • If the insured goes from a Claims Made to an Occurrence form, they may have a gap in coverage (see note above regarding “nose” and “tail” endorsements). If the injury occurs during the Claims Made policy but the claim doesn’t arrive until after policy expiration, it’s possible that there is no coverage provided by either policy.

Keep in mind that you will see Claims Made coverage on most, if not all, Professional insurance policies, Storage Tank policies, and Environmental Impairment Liability (EIL/Site) policies. There are advantages and disadvantages to both types of coverage. For example, a Claims Made policy may be lower in price initially but as the coverage continues and the retro date grows older, the premium should increase over time. With Occurrence coverage, the limits set for the particular policy period remain the same regardless of when a claim is brought whereas a Claims Made policy can provide for broader coverage or higher limits over time.

For more information on this topic, contact us.

* The comments above reflect an overview of Claims Made and Occurrence coverages and may not apply to all policies and situations. It is important to read and fully understand the insurance policies associated with your accounts.