Jul 27, 2023
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Liability Policies: What is the Difference between Occurrence vs. Claims Made Policies?

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Liability Policies: What is the Difference between Occurrence vs. Claims Made Policies?

Liability policies are typically written on either an “occurrence” or a “claims made” basis, and it’s important to understand the difference. Learn more from our experts at Morris & Garritano.

 

Liability policies are typically written on either an “occurrence” or a “claims made” basis. Failure to report a claim (or even a potential claim) according to the reporting provisions in the policy can potentially provide grounds for an insurer to disclaim coverage for the loss, even when the claim would otherwise be covered. 

 

Occurrence

Most, but not all, commercial general liability policies are written on an “occurrence” basis. An occurrence policy covers claims that arise out of damage or injury that took place during the policy period, regardless of when the claim is made. This means that if a customer falls on your premises, but you don’t hear about it until two years later when she files a lawsuit, the general liability policy that was in force at the time of the accident is the one that will respond to the claim. 

 

Claims Made

In contrast, most specialty policies — including Professional Liability, Employment Practices Liability (EPL), and Directors and Officers Liability (D&O) — are written with a “claims made” coverage trigger, which means that the claim must be first made against the insured during the policy period for coverage to apply. For example, if you terminate an employee without incident, and then nine months later he files a complaint with the DFEH against you, the claim is considered to have been made at the time the complaint is filed, and the EPLI policy currently in force is the one to which the claim should be reported. 

Most claims-made policies require that claims made during the policy period must also be reported during the policy period. For that reason, even if you’re not sure whether a situation constitutes a “claim,” you’re generally better off putting the company on notice to preserve your right to any potential coverage under the policy. 

If you submit notice of a potential claim, and the insurer determines that there’s enough detail to believe a claim will later be presented, they can accept the matter as a “notice of circumstance” or a “notice of potential claim.” This then serves as a placeholder or bookmark on that policy, signifying that you’ve complied with the reporting requirements, and that the policy is positioned to respond to a future claim, should one be presented — even after the policy expires! 

 

Even if you’re not dealing with the strict reporting provisions of a claims-made policy, all policies include the duty to promptly notify the insurer of potential claims, so if something’s happened, and you’re not sure what to do, please give our office a call; our team is happy to advise you. 

What "covered" should feel like.

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