Commercial Insurance Blog

Claims Made Versus Occurrence Liability Form

A "claims made" policy treats the timing of a claim differently than the more commonly seen "occurrence" policy.

Here's how it works.

Suppose you have a policy that runs from January 1 to January 1. In November of the current policy year someone at your building slips on the steps, falls down and hurts themselves. You don't hear about it…until sometime the following spring when the demand from the injured person's lawyer reaches you. In this example the fall, meaning the actual "occurrence" that prompted the claim, happened in the first policy year, but the claim was filed in the second policy year. The more traditional "occurrence" policy would have the policy that was in effect when the incident happened defend the claim. A "claims made" policy would have the second policy term respond to the incident as this is when the lawsuit was actually made.

claims made versus occurance liability

History

This newer approach was developed in response to lengthy time lags between claims occurring and insurance companies learning about them. This reached a crisis point in the 1970s with the explosion of asbestos and similar industrial or pollution related claims. When lawsuits drained policy limits, policy language gave access to previous years' policies as well. These piled-on claims were never contemplated in the pricing of the insurance; the industry needed a way to close the books on certain types of long tail liability. The solution was what we now call the "claims made" policy.

Insurance companies prefer "claims made" policies so as to close their books on liabilities that have occurred but nobody knows about yet. These policies are most common with Professional Liability, some Products Liability, Employment Practices, Directors & Officers, and other specialty lines, particularly those with long "tails" or discovery periods. Read our blog describing tail coverage and prior acts HERE.

There are many other factors that characterize these highly specialized policies; customizing a policy to meet your specific needs should not be taken lightly. Some of those features are highlighted on this comparison sheet.

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To further discuss the ramifications of policy types and how they may impact your business, please contact the professionals at Gordon Atlantic Insurance at (781) 659-2262.  Questions?  Click the link below:

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