Claims Scenario #1
You buy a policy on January 1, 2009 and renewed it in 2010 and 2011. In 2012, you forgot to renew the policy and the coverage lapsed. (Or, you stopped training clients and chose not to renew your policy. Or, your insurance company non-renewed your policy because they didn’t want to insure trainers anymore. It doesn’t matter why your coverage lapsed, just that it DID lapse.)
Meanwhile, you trained Client X in 2010. In 2012, he files a claim alleging that on October 10, 2010 your negligent instruction resulted in a back injury. The back injury necessitated a series of surgeries, and Client X is filing a lawsuit to recoup cost of medical care, lost wages, and pain and suffering.
How will an Occurrence policy respond?
Since you had a policy that was in effect on October 10, the date the claim occurred, it does not matter that your coverage lapsed in 2012. Your Occurrence policy was in effect the day the incident occurred, and you will have coverage.
How will a Claims-Made policy respond?
Remember that a claims-made policy only responds if BOTH the incident AND the resulting claim filing happen while the policy is in force. In this scenario, the incident occurred in 2010, while your policy was in force. However, the claim was reported in 2012 after your policy had lapsed. You would have no coverage in this scenario.
Claims Scenario #2
Let’s take the above scenario and add a wrinkle. In 2013, the gym where you train clients asked for proof of coverage. This reminded you to check on your insurance – which had lapsed – and prompted you to purchase a new policy effective January 1, 2013. Client X makes the same claim in 2012 for an incident that occurred on October 10, 2010. Do you have coverage?
Occurrence Policy – This is very simple: You would be covered because the incident occurred while your policy was in effect.
Claims-Made Policy – You would NOT be covered. Remember from above that coverage is provided as long as “the insured maintains continuous and uninterrupted coverage” – which, in this scenario, you did NOT do. (To use insurance lingo, when your policy lapsed, your “Retroactive” or “Retro” date changed. Your claims-made policy will have a “Retro Date” listed on the Declarations Page, and you are covered for an incident as long as it occurs on or after the Retro Date. If your coverage lapses, your retro date changes to the start date of the new policy period, and you have a gap in coverage.)
Although Claims-Made coverage is often less expensive, it is important to understand why it costs less and to make an informed buying decision based on more than price alone. Cheap insurance is great – until you find out that your claim is not covered, and the $25 you saved ends up costing you thousands.
If you are considering buying a Claims-Made policy, keep the following in mind:
- Any lapse in coverage can change your Retro Date and potentially invalidate coverage.
- If your Insurance Company cancels or non-renews your coverage, or goes out of business, then you may not have coverage for any incidents reported now that happened in past years.
- If your Insurance Company changes policy terms this year, it changes the coverage provided for incidents occurring in past years – even if you maintain continuous and uninterrupted coverage.
- If you go out of business or stop training clients, you will have to buy expensive “tail” coverage to ensure that you continue to have coverage for past incidents.