Last week we made a case for Occurrence Professional Liability Insurance. Here, we explain why with a bit more detail.
Professional Liability Insurance is provided either on an Occurrence basis or a Claims-Made basis. There are several important differences between the two, but the most important are:
- Timing of when the claim is filed triggers coverage
- How the Limits Work
An Occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when the claim is filed. An occurrence policy will respond to claims that are reported even after the policy has been cancelled or non-renewed, as long as the incident occurred during the period in which the coverage was in force.
In effect, an Occurrence policy offers permanent coverage for incidents that occur during the policy period.
Occurrence limits “restore” each year so that claims paid for incidents arising from one policy year do not deplete limits available to cover claims from other years. Each year an occurrence policy is in force represents a separate set of limits. Ten years of coverage under a $1M/$3M Occurrence policy could theoretically provide the insured protection for up to $30MM in claims (10 years X Annual aggregate limit).
Claims-made policies provide coverage for claims only when BOTH the alleged incident AND the resulting claim filing happen during the period the policy is in force. Coverage is provided as long as the insured maintains continuous, uninterrupted coverage. Each year the policy is continuously renewed, the “coverage period” is extended. Claims made after the “coverage period” ends will not be paid, even if the incident occurs while the policy is in force.
A claims-made policy will cover claims after the coverage period only if the insured purchases extended reporting or “tail” coverage, which can become expensive.
Unlike Occurrence policies, Claims-Made policies do not “restore” each policy year. The limits in force at the policy’s inception are the only limits available to pay all claims for all years the policy is continuously in force.
Next week: Claims scenarios you can relate to.