INSURANCE 101: Claims Made Policy Vs. Occurrence Policy

A Claims Made Liability Insurance Policy

A claims made insurance policy covers insurance claims filed during a given period of time. Generally speaking, a claim must be filed while a claims made policy is still in effect in order for it to be covered by the insurance carrier. This type of policy form is generally less expensive than an occurrence policy as there isn’t any automatic coverage in place once the policy has ended. Business owners who typically purchase claims made with GL or professional liability insurance coverage include contractors, attorneys and medical professionals. The most common types of policies written on a claims made basis include professional liability, directors and officers E&O, as well as employment practices liability insurance (EPLI).

Understanding the difference between a claims made form policy and an occurrence form policy for business liability insurance.

An important consideration with claims made policies is tail coverage. Tail coverage (also known as an Extended Reporting Endorsement) is an additional policy most business owners will need to buy when they decide to retire or exit their business. Otherwise, a claim filed for work done in the past will not be covered under the claims made form. Unfortunately, there isn’t any guarantee an insurance company will write a tail coverage policy and the premium may be expensive depending on prior policy claims.

The Occurrence Policy for Liability Insurance
An occurrence policy provides coverage for losses or claims that are related to a policy term. A claim can be filed years later for a liability caused during a prior period of time as long as there was active coverage in place when the cause of the claim was created. While an occurrence policy form may be more expensive for some types of business, there isn’t any future cost associated with buying tail coverage.

An occurrence policy is the more common from of coverage and a better choice for most business owners. It is more reasonable to have the coverage in place indefinitely for work performed than it is to gamble on finding tail coverage, or avoiding a future claim. In many instances, the additional cost of an occurrence policy form is minimal compared to purchasing a claims made policy.

Why are There Two Types of Policies?
Claims made insurance coverage is more similar to early insurance programs when groups of businesses would form private insurance pools as a means to cover potential losses. As insurance products and companies evolved into an industry, the idea of protecting risks based on a claims made basis followed. The primary reason claims made coverage is still around is because there is a demand and because insurance companies may only be willing to write certain types of risk on a claims made basis.