Claims made? Which one is right for me? It provides a separate coverage limit for each year the policy is in force. It only matters that the policy was active when the alleged incident occurred. Conversely, a claims-made policy covers the insured for an incident that occurred during the policy period and was reported as a claim while the policy remained in force.
Tail coverage is required by claims-made professional liability insurance, especially if:. Occurrence Policy : An occurrence policy protects a business from any covered incident that happens during the policy period, regardless of when a claim is reported. This type of policy will cover a business even if the claim comes in after the policy is canceled, so long as the incident occurred within the time frame enforced by the initial policy.
Example : Bob the business owner purchased an occurrence policy in but switched to a new form of coverage or insurance supplier in Bob gets sued in for an incident that occurred in In this instance, Bob is still covered by his original occurrence policy, because it was active at the time of the incident. Claims-Made Policy : A claims-made policy provides coverage for claims that occur, and are reported, within the specific time period set forth by the policy.
This means that if a policy is canceled, or a premium isn't paid, any claim that comes through will not be covered, even if the incident occurred during the period when the policy was active. Example : Bob the businessman purchases a claims-made policy in and continues coverage through , then cancels. In , Bob is sued for an incident that occurred in Since the claims-made policy is no longer in effect, and he did not purchase tail coverage, Bob is the liable party obligated to pay for damages—not his old insurance carrier.
Tail Coverage , or, officially, an extended reporting period ERP , is an additive option that becomes available only after a policy has been terminated. In effect, a 'tail' endorsement extends the limits of claims-made coverage indefinitely. For a claims-made policy to cover claims made after the expiration date, a tail can be purchased to protect the policyholder from past incidents, despite a claim being made post-policy cancellation.
He then purchases 'tail' coverage. Since he was continuously covered at the time of the incident, and purchased extended coverage, his old insurance carrier is still liable to pay for the suit, even though the original policy is no longer in effect.
A claim made before the policy inception date or after the expiration date is not covered. Secondly, a claims-made policy may contain a retroactive date. When a retroactive date is included, no coverage is provided for claims resulting from events that occurred prior to that date.
The retroactive date is the earliest date on which injury or damage may occur and still be covered under the policy. For example, suppose you are insured under a claims-made policy that has a retroactive date of January 1, Your current policy applies from January 1, , to January 1, On March 3, , you receive a claim for an injury that was sustained on December 15, Because the injury occurred before the retroactive date, the claim is not covered. The retroactive date is usually the inception date of your first claims-made policy.
This date should remain the same each time your claims-made coverage is renewed. It should not be advanced moved up as this will reduce your coverage. When shopping for claims-made coverage, try to avoid buying a policy that includes a retroactive date. Many insurers offer policies that don't contain this provision.
All claims-made policies stipulate that claims must be made during the policy period. Rather, they simply state that claims must be reported as soon as practicable or as soon as possible. These policies are known as pure claims-made policies. Some policies are more restrictive, requiring claims to be made and reported to the insurer during the policy period.
These policies are called claims-made-and-reported policies. A pure claims-made policy is preferable to one that applies on a claims-made-and-reported basis since the former affords broader coverage.
Coverage gaps may occur if you switch from a claims-made policy to an occurrence policy. The following example demonstrates why this is true. Suppose that you are insured under a claims-made general liability policy. Your policy begins on January 1, , and ends on January 1, When your policy expires, you elect to renew it under the standard occurrence-based policy. Your occurrence policy runs from January 1, , to January 1, On December 15, , Ed, a customer of yours, is visiting your office when he trips and falls on a loose piece of carpeting.
Ed injures his back. On March 15, , you are notified that Ed has filed a lawsuit against your firm. He claims that you are liable for his injury because you failed to properly maintain the carpet. The claim is not covered under your claims-made policy because it was made after the policy had expired. The coverage gap cited above could have been avoided if you had purchased an extended reporting period. It does not extend your policy. A claim is covered by an ERP only if it results from an injury or another covered event that occurred before your policy expired.
Many claims-made policies provide an automatic ERP if your insurer cancels or non-renews your policy, replaces it with an occurrence policy, or advances the retroactive date.
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