By Knowing the difference between an occurrence policy and a claims-made policy can help you better understand your professional liability insurance.
Occurrence-based policies are the most common types of policies and are the best fit for most types of insurance.
In this article, we will show you the reasons why experts believe that occurrence policy is superior to a claims-made policy. It doesn’t matter where you bought your policy in the United States, the UK or Canada, occurrence-based policy is the most popular amongst insurers. Whereas, claims-made insurance is popular in professional liability insurance.
Below are the top reasons why occurrence policy is better and more popular than claims-made policy.
1. Your current or future contract with a vendor may require an occurrence policy in order to do business
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Simply put, the Occurrence Policy provides better protection for your vendors. If you were to go out of business or discontinue a product, your vendor wants to be protected by your policy (ex: legal defense and payments for settlements or judgments) if there are any past injuries involving your products that could result in a future lawsuit.
An expired claims-made policy is not going to respond to these past injuries unless you have purchased the “optional extended reporting period.”
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2. It is easier to change insurers at renewal when you have occurrence policy
Claims-made policyholders may find it impossible to change insurance providers once an actual claim has brought your risk potential to the attention of insurance underwriters.
Even if you can get an insurance quote from another carrier, it will be difficult to negotiate the proper retroactive date to change to a new Claims-made insurance carrier or nose coverage to change to a new occurrence carrier.
What is a retroactive date? A retroactive date is a date from which you have held uninterrupted professional indemnity insurance cover (even if you changed insurance company during this time) or a date in the past from which your insurance provider has agreed to cover you.
3. You are better protected if you can no longer afford insurance and have to “go bare” while continuing to operate
With an Occurrence Policy, at least you know your past policy(ies) will respond to any injuries that occurred while such policy(ies) were in effect.
On the other hand, the Claims-made policy or renewal has to be in effect or current at both the time of the injury AND the filing of the claim in order to respond.
4. Past injuries involving a product you’ve already discontinued due to its health implication remains covered by your occurrence based insurance policy
In the United States, Canada and the UK, if you have discontinued a hazardous product line, any past injuries involving these products are covered by the insurance policy that was in force at the time of the injury
With a Claims-made policy, the policy renewal must be in force both at the time of the injury AND when the claim is filed.
5. Going out of business doesn’t stop your insurance carrier from paying for any product liability claims that occurred at the time the policy was in force
If you go out of business and cease operations you have some comfort in knowing any past injuries involving your products are covered by the insurance policy that was in force at the time of the injury.
With a Claims-made policy, the policy renewal must be in force both at the time of the injury AND when the claim is filed.
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6. When you sell your company, the new buyer accepts total responsibility of all liabilities
If you sell your company, the new buyer is more likely to accept liabilities of your past products in the marketplace.
With a Claims-made policy, you are more likely to have to purchase the “extended reporting period” on your Claims-made policy and be responsible for all liabilities for at least two more years.
It is important to note, that many hazardous products with a long product life may be impossible to insure with an Occurrence Policy. I believe this is because an insurance carrier can better cut their losses by non-renewing a claims-made policy versus an occurrence policy.
