Professional Liability: Claims Made vs. Occurrence
Typically, the professional liability coverage for municipal exposures such as law enforcement liability, employment practices liability, employee benefits liability and public errors and omissions coverage will be covered on a claims made coverage form. However, some state pools and other programs might offer an occurrence coverage form. If you’re moving from one to the other, there are some things you need to know.
An occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when a claim is filed. An occurrence policy will respond to claims that come in – even after the policy has been canceled – so long as the incident occurred during the period in which coverage was in force. You’ll have to maintain records of insurance companies going back several decades in order to file a claim that pops up later on. If you’ve been in a state pool or another pool, you’ll also want to know the limits in place during the occurrence year. These may have been different than they are today.
If you’re a member of a state pool, consideration should be made as to its financial standing. If the pool or prior insurance company for that matter becomes insolvent, there may not be funding available should an occurrence claim arise several years down the road. As is often the case with the types of liability coverage we’re discussing. Pools are likely not protected by the state insurance guaranty fund which is, designed to protect insureds from their insurance company becoming insolvent.
On a claims made coverage form, the policy that will respond to a liability claim will be the policy that’s in force at the time the claim is made, not the policy in force at the time of the claim occurrence. In other words, the claims made coverage applies to claims which were made during the policy period, regardless of when the injury or damage occurred (subject to the retroactive date). The retroactive date will be the original date the claims made policy became effective. If coverage moves to a new insurance carrier, the claims made date will remain, unless coverage is placed back on an occurrence basis.
You’ll need to purchase an extended reporting period if you decide to move from claims made to an occurrence form, cancel coverage altogether, or change the retroactive date for any reason. The extended reporting provision would allow for those claims to be reported under the expiring claims made form for the length of time purchased. This follows the claims made language above. Coverage is afforded during the policy term currently in force (when the claim is made), not when the claim occurred.
There’s not a right and wrong here. Typically the marketplace will dictate what’s available. Be sure to consider the financial capabilities of pools and other programs that may not be regulated in great detail as standard insurance companies are. Ask to review financials and trends, whether considering pool coverage or a standard insurance company. Contact an 'A' Team member today for more guidance.
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