What’s the Difference between a Claims-Made and an Occurrence Policy?

I’m glad you asked!

I’ll try to answer for you.

My suspicion is that if you’re reading this post, then you did a very specific search and you just want an answer. You don’t need any fluff.

Claims-made and occurrence policies will always refer to a feature in some kind of liability policy: professional, directors and officers, abuse and molestation, general, or some other specialty liability policy.

Claims-Made, Defined

A claims-made policy is one that springs into action when a claim is made, not when the occurrence happened that caused the claim.

For example, a medical professional performed surgery on a poor young guy’s stomach in October 2012.

It wasn’t until February 2013 that the lad started having belly pains and went to see a different specialist. That new specialist checked out the work of the previous doctor and discovered a hack job that gave rise to some complications.

The boy’s family served the original doctor with a medical malpractice lawsuit in March due to the costs of correcting the original surgery.

The insurance policy in effect when the claim is made (in March) is the policy that would defend the original doctor or pay damages. The policy that was in effect when the occurrence happened (the hack job surgery in the previous October) is off the hook.

The trigger for insurance coverage in a claims-made policy is when a claim is made, not when the situation actually happened or occurred

Occurrence, Defined

An occurrence policy springs to action according to when the thing happened that gave way to the claim.

In the scenario above, were the doctor so lucky as to have an occurrence policy, the policy that was in effect when the October surgery happened would have responded to the claim.

Most modern general liability policies are occurrence policies.  Most professional malpractice policies such as medical malpractice, legal malpractice, technology errors and omissions, etc. are policies that are written on a claims-made insurance form.

Does It Matter?

Another great question!

Yes, it does. Normally, it’s a better option to have an occurrence policy. While the actual insurance terms might be similar, occurrence policies provide more flexibility if you either have to cancel the policy or switch insurance companies.  Since I said I’d be brief, I won’t belabor the point. Ask your insurance pro and she should be able to give you a couple specific reasons why the occurrence feature is slightly more preferred than the claims-made feature.

One of the biggest reasons why occurrence policies edge out claims-made is that if you cancel the policy, you would have coverage for claims that come to light after cancellation but that occurred during the policy.

If you had a claims-made policy, you would have to purchase extra coverage (called tail coverage) to give you some time to report a claim. Once the tail coverage runs out, you pray that no one comes forth with a lawsuit because the coverage is gone.

What Does Claims-Made and Occurrence Have to Do with Nonprofit Insurance?

Again, with the solid query!

Nonprofits often require professional liability and abuse and molestation liability. If you see that you’re being offered a claims-made policy, there’s a chance–a chance–that the policy is not your best option (there’s a lot more that goes into the quality of the policies than claims-made vs. occurrence).

The point is that when you evaluate the main general, professional, and abuse liability policies, it’s an important consideration.

Your directors and officers liability will nearly always be claims-made, so don’t raise a stink about that.

Remember: This is an Important Consideration, but It Probably Isn’t the Most Important Consideration

Review all aspects of your liability policy proposals. Dig in. Ask questions. Wear us insurance professionals out. That’s why we get paid the big bucks (cough).

And NEVER take my word as gospel truth. Discuss your specific situation with your agent (or call me for a consultation–I’m happy to help). This topic can actually be pretty complicated, so use this as part of your research or as a jumping off point.


Question for the Comments

What strange policy terminology would you like to see defined?


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