Salon Program - Claims-made vs Occurrence
"Are You Comparing Apples to Apples, or Apples to Oranges? Understanding the Differences in Insurance Policy Forms"
Professional Liability
The Occurrence Form is a type of insurance policy that provides coverage for claims arising from incidents that occur during the policy period, regardless of when the claim is actually reported or filed. In other words, the Occurrence Form covers claims for events that happen during the policy term, even if the claim is made after the policy has expired.
Occurrence Form Key Features:
Event-Based Coverage: Coverage is triggered by the occurrence of the event, such as an accident, injury, or damage, during the policy period.
Claims Can Be Reported Later: A claim can be made after the policy period ends as long as the incident (the occurrence) happened during the period when the policy was active.
Long-Term Protection: The protection lasts for any claims related to incidents that occurred during the policy period, even if they are reported years later.
The Claims-Made Form is a type of insurance policy that provides coverage only for claims made during the policy period, regardless of when the incident or event causing the claim actually occurred. In other words, for a claim to be covered under a Claims-Made policy, the claim must be reported to the insurer while the policy is active, even if the event leading to the claim happened before the policy was in force.
Claims-Made Form Key Features:
Claims Must Be Reported During the Policy Period: The claim must be made during the policy period, even if the incident that caused the claim occurred before the policy began.
Coverage Based on When the Claim is Made: The focus is on when the claim is reported to the insurer, not when the event or incident occurred.
Tail Coverage (Extended Reporting Period): Some policies offer the option to purchase "tail coverage," which extends the reporting period for claims made after the policy has expired, typically for a few years after the policy ends. This is useful for incidents that may be discovered later but occurred during the policy period.
Retroactive Date: A Claims-Made policy may have a retroactive date, which defines the earliest date from which an event or incident can be covered under the policy. Claims arising from incidents before the retroactive date are not covered.
Claim Example:
If a company has a Claims-Made liability insurance policy from January 1, 2020, to December 31, 2020, and an incident occurs in August 2020, but the claim is not made until January 2021, the claim will not be covered unless the company has purchased tail coverage or has a retroactive date that extends beyond the policy period.
Key Differences Claims-Made versus Occurrence Form:
Occurrence Form: Covers incidents that happen during the policy period, even if the claim is made after the policy ends.
Claims-Made Form: Covers claims made during the policy period, even if the incident causing the claim occurred earlier.
The Claims-Made Form is generally considered to have a more limited window of coverage, as the claim must be made while the policy is active or within a specified extended period after the policy ends.
The Occurrence Form is typically preferred by policyholders because it offers more long-term coverage, as opposed to the Claims-Made Form, which only covers claims made during the policy period.
Summary: Why insureds choose Occurrence Coverage
Long-Term Protection: Coverage is tied to when the incident occurred, not when the claim is filed.
No Tail Coverage Needed: Eliminates the need for extended reporting periods.
Simplicity: No need to manage retroactive dates or continuous coverage requirements.
Reduced Risk During Transitions: Changing carriers does not create coverage gaps for past work.
Peace of Mind: Protection remains in place even years after a policy period ends.
