Business Insurance Explained: “Occurrence” vs. “Claims Made”

Even with the best intentions, the insurance industry can be quite confusing at times. A great example is the subtle yet important concept of “Occurrence” business insurance policies vs. “Claims Made” business insurance policies. These are relatively obscure sounding terms that can have big consequences on how your coverage responds.

Occurrence policies respond to events that happen while the policy that was in effect. This is true regardless of how far back that event was from the time the actual claim was reported to the insurance company, or whether the same insurance company is currently insuring your business. An example is someone who trips in an office, but doesn’t experience back pain until several months later. By this time, the business may have switched insurance companies. However, the claim would be handled by the insurance company providing coverage at the time that the slip occurred. Most General Liability insurance policies are written on Occurrence based policy forms.

A Claims Made policy is one in which the current insurance company is responsible for claims made during the current policy period only, even if the event that gave rise to the claim occurred during a previous time. In the above example, the business owner’s current insurance company would be responsible for the claim, not the insurance company providing coverage when the actual slip occurred. Most Professional Liability (aka E&O) insurance policies are written on a Claims Made based policy form.

Claims Made policy holders, use caution!

Under some circumstances, Claims Made policies may not respond to events that happened before your current policy period. To avoid this, it is important to pay attention to something called the “retroactive date” on the policy. This is what determines how far back in time your coverage will respond. Most insurance companies are willing to backdate this to the first date you purchased the coverage, as long as you can show that you have had insurance in place continuously during that time and that you have not had any claims filed.