The Difference Between Claims Made and Occurrence Liability Policies

For the Small Business

Liability is the cause of damage to someones property and/or bodily injury to another person caused as a result of negligence of a person. Liability Insurance covers a policyholder when they are legally obligated to pay another due to bodily injury and/or property damage caused to another person. Liability insurance may provide coverage for individuals or businesses.

There are two major forms of liability insurance policies that can be purchased. The difference between these forms is how the claims are paid when an insured is found liable:

  • Occurrence Claims Policies
    • Occurrence policies provide the insured with liability insurance protection during the policy period and the insurance company agrees to pay claims that occur during the policy period regardless of when the claim is actually reported.
    • The insurance policyholder has liability coverage for any claim that happens to actually take place and “occur” during policy term no matter when the claim resulting from the incident is actually reported to the insurance company.
    • Occurrence policies may often lead to situations where a claim could be made years after an occurrence took place.
    • Occurrence claims policies can create uncertainty for policyholders and insurance companies.
  • Claims-Made Policies
    • With Claims-Made liability policies the insured is protected and insured against liability claims and/or incidents when they are actually reported during the time the insurance policy is actually in force.
    • With a Claims-Made liability policy the insured has coverage for incidents and liability claims that occur even prior to the effective date of the claims-made insurance policy.
    • The insurance coverage for incidents that happen prior to the policy effective date is known as “prior acts coverage.” Prior acts coverage is effective for the period of time before the policy period starts and any claims made during this period are covered under the prior acts period.
    • Prior acts coverage isn’t always offered and typically only given to insureds with a claims-made policy in force immediately before the new claims-made policy was issued. Generally, the new policy will be written in a consistent basis as the prior policy.
    • Claims-Made policies are common for professional liability insurance risk management.

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