There are several important differences between Claims-made and Occurrence coverage. Key among them are:
OCCURRENCE COVERAGE
Timing:
An Occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when a claim is filed. An occurrence policy will respond to claims that come in – even after the policy has been canceled – so long as the incident occurred during the period in which coverage was in force. In effect, an Occurrence policy offers permanent coverage for incidents that occur during the policy period.
Limits:
Occurrence limits “restore” each year so that claims paid for incidents arising from one policy year do not deplete limits available to cover claims from other years. Each year an Occurrence policy is in force represents a separate set of limits. Ten years of coverage under a $1M/$3M Occurrence policy could provide the insured protection for up to $30MM in claims (ten year combined annual aggregate limit).
CLAIMS-MADE COVERAGE
Timing:
Claims-made policies provide coverage for claims only when BOTH the alleged incident AND the resulting claim happen during the period the policy is in force. Claims made policies provide coverage so long as the insured continues to pay premiums for the initial policy and any subsequent renewals. Each succeeding year the policy is continuously renewed, the “coverage period” is extended. Once premiums stop the coverage stops. Claims made to the insurance company after the coverage period ends will not be covered, even if the alleged incident occurred while the policy was in force. A Claims-made policy will cover claims after the coverage period ONLY if the insured purchases extended reporting period or “tail” coverage.
Limits:
Claims-made limits DO NOT “restore” each year the way Occurrence Coverage limits do. The policy limits in place when the policy is purchased remain the single set of limits available to protect the insured from all claims that could arise from care provided during the years the policy is continuously in force. The insured does not have a separate set of limits for each year the policy is in force.
Step Factor:
Because both the incident and the claim have to be filed during the coverage period, the Claims-made insurer has little risk of loss the FIRST year a new policy is in force. That is why the first year premium for Claims-made coverage is lower. Each year the policy continuously renews, the coverage period expands, and the insurance company’s exposure to loss increases. For the first four years a Claims-made policy is in force, the premiums increase incrementally to reflect this increased risk.
This process is known as the “Claims-made step factor.
”Usually by the fifth year of Claims-made coverage, the risk of loss levels off and the “step factor” reaches a “mature” Claims-made rate. “Mature” Claims-made rates are typically very close to normal rates for Occurrence Coverage.
SUMMARY
Claims-made coverage has replaced Occurrence as the most common type of policy offered by professional liability insurance companies. A number of factors are behind this evolution, including the fact that reduced carrier liability under Claims-made can mean slightly lower premiums for insured’s. Occurrence coverage, or “permanent” coverage, is increasingly difficult to find.
The important thing to understand is why the Claims-made coverage costs less. Don’t ever assume coverage under a Claims-made or Occurrence policy are the same, even if the limits are identical.
If you are considering a move from Claims-made to Occurrence coverage, be sure to seek professional legal advice to revise your partnership agreements, employment agreements, buy/sell agreements and other corporate contracts buying any coverage.
Note that if you your current program is “Claims Made” then you need to understand our program is an Occurrence Form which is different than your current program and once you switch to an Occurrence Form program you will not be covered for prior acts under your old policy or under the new one, unless you add Tail coverage, although moving forward, in the event of any new claims, you may be covered for any new approved claims that occur after the new policy effective date, while this policy is in effect and even after it is canceled, non-renewed or you change to another company.
*OCCURRENCE VS CLAIMS-MADE COVERAGE DISCLOSURE page is provided for information purposes only and you should always consult with your legal advisor for specific questions!