OK firstly, let’s define ‘Claims Made’:
An insurance policy on a ‘Claims Made’ basis meets claims that are made after the policy inception date. ‘Claims made’ insurance policies are normally associated with Professional Indemnity and its by-products, such as Medical Malpractice, Directors & Officers’ Liability, Management Liability, Cyber Liability, Trustee’s Liability, and so on.
Whereas ‘Claims Occurring’ is defined below:
An insurance policy on a ‘Claims Occurring’ or ‘Occurrence’ basis is a policy that meets claims that happen during the timeframe of the policy regardless of when the claim is actually made. General liability insurances fall into this category, such as Employers’ Liability, Public Liability and Product Liability.
The main difference between ‘Claims Made’ and ‘Claims Occurring’ is the need for the Insured on a ‘Claims Made’ policy to report a claim or a circumstance that could lead to a claim during the policy period. The Insured has to make a No Claims Declaration at each renewal of a ‘Claims Made’ policy. Even if a claim does not eventuate until a few years later, you should still notify of a potential claim when it first comes to your attention. There is a misconception that if you notify of a potential claim that premiums will go up the next year. This is not true for potential claims that are precautionary only. Insurers do understand and acknowledge some notifications are “best practice” and will not result in any change to premium on the next renewal. It is best to err on the side of caution and notify your broker.
It is not necessary to make a No Claims Declaration for a ‘Claims Occurring’ policy, however the policy will have its own claims conditions that need to be adhered to in the event of a claim.
Another important aspect of a ‘Claims Made’ policy is the Retroactive Date, this is the date that the policy was first incepted. At each renewal the same Retroactive Date is carried forward. It is important that the Insured informs the insurer (existing or new) of the Retroactive Date, otherwise there is the risk of the new insurer using the first day of cover as the Retroactive Date and if this were to happen any liability arising prior to commencement of the new policy would not be covered.
The only similarity between the two policies is the fact that neither will provide cover for claims that occur after the policy has lapsed or been cancelled, even if the claim relates to work that was carried out when the insurance was in place.
In summary the major differences between a ‘Claims Made’ and ‘Claims Occurring’ policy are as follows:
- A ‘Claims Occurring’ policy will cover claims that have occurred during a period of cover even if the claim is made after the cover has lapsed or been cancelled.
- A ‘Claims Made’ policy will not provide cover for any claims after a policy has lapsed or been cancelled. Once the premium stops the coverage stops. Claims made to the insurance company after the coverage period ends will not be covered, even if the alleged incident occurred while the policy was in force.
It is therefore important to consider buying ‘run off’ cover if you decide to cancel your policy, especially if you have a ‘Claims Made’ policy. This will cover claims made after the policy has lapsed or been cancelled, but which relate to work carried out prior to the lapsing or cancelling.
Initially, the cost of ‘run-off’ cover will be no less than the cost of the annual premium for full cover, but this should reduce year-on-year as the likelihood of a claim arising diminishes.
But…just when you thought this is all very clear. Even when you have an ‘Occurrence’ based cover (usually Public and Products Liability policies) if you have closed down your business, stopped producing products* or cancelled your policy, do you need run off cover? Simple answer is yes. You do need run off cover if there is a chance of damage to property or an injury occurring to a third party after the policy has been cancelled. Why? Because even in occurrence based wording the Operative or Insuring clause in most policies limit the cover for claims happening during the period of Insurance.
The key take away of this article is that a ‘Claims Occurring’ wording is preferable to a ‘Claims Made’ wording, if you are ever given a choice between the two.
Clearly, claims made insurance is not straight forward and you may need to be advised as to whether or not you have a choice between the two policies. We therefore encourage you to get in touch with Coverforce Leed Insurance Brokers to help you find the best claims policy for your business. We have been supporting businesses for over 30 years and have the knowledge and experience to help you in this matter.
*A product is usually defined as anything sold, serviced, repaired, installed, imported or manufactured.