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June 21 2017

Your liability insurance policies: the differences between occurrence-based and claims-made policies

You may be familiar with your company’s liability insurance policies enough to know that one or more of them may contain highlighted text stating that the policy is a “claims-made” policy, and that others operate on an “occurrence” basis.  What this all actually means, however, may be something of another matter.  Here are some ways in which to help differentiate your “claims-made” liability coverage from your “occurrence-based” coverage:

 “Claims-Made” Liability Policies

Types of Policies Often Issued on a Claims-Made Basis:

  • Directors & Officers (D&O), Errors & Omissions (E&O), Professional Liability (e.g., legal or medical malpractice), Employment, Cyber, Environmental.

Event(s) Triggering Insurance:

  • Harm at issue and/or alleged wrongdoing must take place during policy period or within a defined time period dating back to a specific date (usually called the “retroactive date”) prior to when the policy went into effect.
  • The resulting claim or lawsuit must be made or commenced within the policy period.

Notice of a Claim or Lawsuit:

  • The insurer must be notified of a claim or lawsuit either within the policy period or, depending on the policy’s specific provisions, a defined period of time after the policy has expired (usually called the “reporting period” or “extended reporting period”).

“Occurrence-Based” Liability Policies

Types of Policies Often Issued on an Occurrence Basis:

  • Most business liability coverage forms, including general liability, products and completed operations, contractual liability, and advertising injury (though some or all of a comprehensive general liability policy may be written on a claims-made basis).

Event(s) Triggering Insurance:

  • Harm at issue must take place during the policy period.
  • The event or wrongdoing that allegedly caused the harm at issue does not need to have happened during the policy period and may take place before the policy went into effect.
  • The resulting claim or lawsuit does not have to arise during the policy period and may take place well after the policy expires.

Notice of an Occurrence, Claim or Lawsuit:

  • “As soon as practicable” after the insured becomes aware of the possibility that it may be the subject of a claim or lawsuit.
  • “As soon as practicable” after receipt of a claim or lawsuit, although some non-standard forms might require notice of a suit “immediately”.

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