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Occurrence vs. Claims Made..& Switching!

Generally all Property/Casualty policies you purchase will fall into one of two categories-"Occurrence" or "Claims Made".

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Generally all Property/Casualty policies you purchase will fall into one of two categories-"Occurrence" or "Claims Made". In an earlier article I talked about the claims reporting provisions between "Claims Made & Reported" vs. "Pure Claims Made" forms. Now lets compare those two forms with the 'occurrence' form and what to be aware of when you switch between an 'occurrence' and 'claims-made' policy.

First, the "Occurrence" coverage form is the simpler of the two. Most P&C insurance policies fall into this category. Simply, the 'occurrence' form means that the policy responds to events that occur during the policy term regardless of when the claim is made. It's very important here to understand that the coverage trigger is the bodily injury or property damage that happens as a result of the occurrence or event. The event is not the trigger. As long as the BI/PD occurred during the policy term the obligation of the insurer to respond remains even if a claim or lawsuit seeking damages is filed months or even years after the occurrence policy term has ended.

As I discussed in my earlier post regarding 'claims-made' forms, there is a much greater emphasis on claims reporting. The 'Claims Made & Reported" policy requires that the 'claim' be made during the policy term or "Extended Reporting Period"(ERP), and reported during the same period of the policy currently in force at the time. The "Pure Claims Made" form still requires that a 'claim' be made during the policy period or ERP. The major difference here is that the insured needs only to report the 'claim' "as soon as practicable", or promptly, and not necessarily during the policy term. (Note the importance of "made during the policy period"). Claims-Made policies provide coverage for 'claims' only when BOTH the alleged incident AND the resulting 'claim' happen during the period the policy is in force!

Switching from an "Occurrence" to a "Claims Made" form is the least perilous change. Because the acts taking place during an occurrence policy are normally covered regardless of when the 'claim' is made, coverage for acts taking place during the policy period remains in place even after the occurrence policy expires or a switch is made to a claims-made policy.

Moving from "Claims Made" to an "Occurrence" form will create a coverage gap. Here is where care must be taken to properly fill those gaps! The claims-made policy will provide coverage for acts during the policy term when the 'claim' is first made during the policy period, but under this scenario that policy is gone, replaced by the occurrence form; so if the claims-made policy is not in effect when the 'claim' is made, there is no coverage. The most common option here to plug the gap is to purchase "Extended Reporting" coverage, or 'tail' coverage, from the expiring claims-made insurer. Generally priced at one or two times the expiring policy premium 'tail' coverage will be limited to one or two years in many cases. A less likely option is to try to persuade the occurrence form insurer to provide 'prior acts' coverage, sometimes called a "retro-endorsement". It can be done but generally only for the first year.

From the above you can understand how important it is to make sure that the contract between the insured and insurer is proper for your needs and protection. Claims time is not when to discover how the insurer will respond!

Article By: Dennis Gambill - The author is an Insurance Litigation consultant. Adjunct professor at EMC for 8 years-Risk & Insurance. 40+ years-both MGA and agency experience.

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