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Occurrence v. Claims Made Liability Differences Explained

Occurrence v. Claims Made Liability
Allen Financial Insurance Group & The Equestrian Group
Claims Made Liability Difference Explained

By: Allen Financial Insurance

Occurrence v. Claims Made Liability Differences Explained

An occurrence policy provides coverage for “alleged incidents” (injuries) that happened during the policy year regardless of when the claim is reported to the carrier. It provides a separate coverage limit for each year the policy is in force. It doesn’t matter if the policy is active when the claim is reported. 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.

Not knowing the difference between “Claims-made” vs. “Occurrence” insurance policies can be a costly mistake.

It is important to understand the difference between the two most common types of professional liability insurance plans – “Claims-made” and “Occurrence”.

What is a “Claims Made” Policy?

Under a “claims made” policy, the policy covers claims made against you only while the policy is in effect. The down side of this type of policy is that coverage must be continued indefinitely to assure coverage for claims filed in the future for actions that occurred in the past. Essentially, once the policy has lapsed you no longer have coverage.

A claims made policy covers you for any covered claim provided it meets two criteria:

  • You are insured when the claim is made. If you no longer need coverage, you can purchase a “tail” to protect you for the past (see tail).
  • You have continually renewed the policy from the time the incident occurred (the psychological service you provided that is the source of the suit) until the time the claim is made.

What is an ” Occurrence ” Policy?

Under the “occurrence” policy, you are covered for alleged acts of negligence that occurred while the policy was in effect. It does not matter if the coverage is in effect at the time the claim is made. The benefit of occurrence coverage is that even if you cancel your policy at some future date, you will still have coverage for events that occurred while the policy was in effect.

An occurrence policy protects you from any incident occurring while the policy is in force. The policy then covers those incidents forever. For example, you buy a policy in 2014, treat Client A in 2014 and terminate the policy 2015. In 2016, Client A sues you for an incident that occurred in 2014. You are covered, because you were insured when you treated Client A. With an occurrence policy, it does not matter if you are covered when the suit is brought.

 

Occurrence v. Claims Made Liability Differences Explained
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Occurrence - Occurrence v. Claims Made - Claims Made Liability Differences Explained - Occurrence v. Claims Made Liability - Claims Made