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Common Insurance Terms – Occurrence vs. Claims-Made Coverage

March 12, 2013

Most insurance policies are written on the basis of either “Occurrence” coverage or “Claims-Made” coverage. It is important to understand the difference between Occurrence and Claims-Made policies because without properly reviewing your risk, you could be left with gaps in coverage. Let’s look at each in more detail:

A policy offering Occurrence coverage will only cover injuries or losses that occur during the policy period, regardless of when a claim is made (reported). For example, a claim reported after the expiration of an Occurrence policy would be covered only if the alleged injuries or losses occurred during the time the policy was in force. A familiar example of Occurrence coverage might include your personal Auto Liability Insurance.

On the other hand, a policy offering Claims-Made coverage will only cover claims made (reported) during the policy period. Such a policy would not cover a claim reported before or after the policy’s lifetime unless the Retroactive Date and/or Tails coverage precedes or extends the reporting period defined by the Claims Made policy’s effective date.

Claims-Made policies usually include a Retroactive Date (Retro Date) that may further limit or expand the range of claims covered. If a Claims-Made policy has a Retroactive Date, any claim made on a loss or injury that took place before the Retroactive Date may not be covered, even if a claim on that loss is made during the policy period. For example, if someone files suit against you for an error or omission that took place before your E&O policy’s Retro Date, the claim will not be covered even though you had your E&O Insurance in place when the claim was made.  Note that Retro Dates are also sometimes referred to as “Prior Acts” dates.

Working hand in hand with the Retro Date is a provision called Tails coverage, an endorsement that extends the reporting period beyond a policy’s expiration date. It is important to remember a few conditions governing Tails coverage:

 A reported incident must occur within the policy period, NOT the tails period.
•  Tails coverage is active for a limited period of time, usually 1 year.
  Purchasing Tails coverage only extends the reporting period.

Our point here is that it’s important to understand whether your insurance policies are operating on an Occurrence or Claims-Made basis. Most liability policies operate on a Claims-Made basis. Therefore, it is important ask:  If a policy offers Claims-Made Coverage, what is its Retro Date? Should you purchase Tails coverage?  Understanding these finer points will better enable you to spot gaps in needed coverage and to make informed decisions when you are offered options on a policy.

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