What is your form of coverage? Claims made vs. occurrence

What is your form of coverage? Claims made vs. occurrence

In the insurance industry we have earned quite a reputation for sending out reams of paper in the form of renewals, declaration pages, endorsements, changes . . . . you get the idea. So many clients just look at the premium on their commercial policies to make sure it didn’t go up too much and just file it away.

Without looking at your policy, do you know if it is a claims made policy or an occurrence form? Did you even know that there is a difference? There is, and it can be an enormous blow to your business if you don’t understand the difference and have changed carriers over time.

Claims-made form covers a claim that occurs and is reported while the policy is in effect. The policies provide coverage so long as the insured pays premiums for the initial policy and the subsequent renewals. As you continue to renew the policy each year, the coverage period is then extended. Coverage stops once the premiums stop. Any claims filed with the company after the coverage period ends will not be covered.

For example, you are an attorney and your claims made policy is in effect from 01/01/2016 to 12/31/2016. A claim is filed for a loss that occurred on 6/1/2016.  You are covered.

It is now 1/1/2017 and you have started a new policy with a different carrier.  A claim is filed for a loss that occurred on 6/1/2016. Since the policy that extend from 1/1/16 – 12/31/16 is no longer in force there would no longer be coverage.

There are solutions to address the 6/1/16 claim if you have moved your policy. If you asked your new carrier for retroactive coverage or tail coverage. Tail coverage extends the amount of time you can report a claim after a policies cancellation.  This is extremely important especially for errors and omissions coverage or professional liability. Caution: while you think you might be saving money moving your policy to another carrier, if you ask for the tail coverage you could see the cost rise and no longer realize a savings.

Occurrence coverage covers losses that take place during the specific coverage period. Regardless of when the claim is filed. In the above example, let’s say you switched carriers as of 1/1/17. A claim is filed for 6/1/2016. Even though the prior policy has expired, and you have moved to another carrier it is still covered under the previous policy.

The lesson in all of this is don’t get attached to a cheaper quote until you understand how a claim in a prior term would be covered. Moving from an occurrence coverage policy to another occurrence coverage policy provides less risk. Moving from a claims made policy to an occurrence coverage policy opens you up to some gaps in coverage if not addressed correctly.

Not sure whether you have claims made coverage or occurrence coverage? Give us a call at 513-444-2100 or email us at cberry@berry-agency.com and we can help.