Claims Made Versus Occurrence
You are a contractor working on a job site on an ordinary day. Suddenly, without warning, there is an accident and spillage of chemicals. It heads down the hillside for a pond or storm drain. Speedy action by you and other contractors on the job site contains it. Proper calls are made to the right governmental agencies. You assist in the hiring of an accredited remediation contractor who arrives quickly and facilitates the cleanup. You are not exactly sure what caused the loss or if anyone is pointing a finger at you or your employees. It is October 30.
As a responsible business owner, you make inquiries with your employees and believe it was the actions of another contractor on the job. After a few weeks, it is just a memory of a near miss. January 15, you receive an invoice from the General Contractor and a demand to pay the costs of the remediation. The amount of the bill seems large in relation to your recollection of the spill.
But you are not worried. You have insurance for this kind of thing. You just had your renewal meeting with your producer just 60 days ago and you know that all payments are up to date. You file the claim with your agent and wait for the response from your insurance carrier regarding how and when they are going to get this taken care of, but in seven days, you get a certified letter, and your claim is denied!
Your pollution policy, and almost always any add-on coverage in your package policy, has a claim-made reporting requirement. But you reported the claim as soon as you knew, or did you? Your policy follows the calendar year of 1-1 to 12-31. In this case, you missed your reporting deadline by two weeks. In all but the rarest of cases, you have failed to report your first notice of the claim to the carrier as required by the policy.
An occurrence policy covers claims that arise from incidents that occurred during the policy period, regardless of when the claim is made. A claims-made policy covers claims that are reported during the policy period, regardless of when the incident occurred. If the covered action begins in the policy year, or for continuing exposure cases, like construction defect, the carrier will respond to all covered allegations.
The form of the policy can impact how claims are handled. Occurrence-based policies provide broader coverage, but they often come with higher premiums. Claims-made policies offer more limited coverage but can be more affordable. When choosing between the two forms, policyholders should consider their risk exposure and the likelihood of claims being made after the policy period has ended. Depending on the nature of the risk, one form may be more appropriate than the other. Some coverage forms are only written on a claims-made basis.
Claims made forms are usually used for professional liability and errors and omissions insurance policies. This includes coverage for lawyers, architects, engineers, doctors, and other professionals in similar fields. Cyber liability insurance, EPLI and Directors and Officers liability insurance may also use claims made forms.
Yes, there are other forms of insurance coverage that operate on a claims-made basis. Some examples include:
Professional liability insurance: Typically purchased by professionals such as doctors, lawyers, and accountants, this coverage protects against claims of malpractice or negligence.
Employment practices liability insurance: This coverage protects employers against claims of employment-related discrimination, harassment, or wrongful termination.
Directors and Officers liability insurance: This coverage protects individuals who serve on boards of directors or as officers of companies against claims of breach of duty or other wrongdoing.
Cyber liability insurance: This coverage protects against losses resulting from cyber-attacks, data breaches, and other technology-related incidents.
Environmental liability insurance: This coverage protects against claims related to pollution or other environmental damage caused by business operations.
In general, with a claims-made coverage form, report the claim as soon as possible, even if the claim is still in its early stages or you are uncertain about the outcome. This is because claims-made policies typically have specific reporting requirements and strict timelines for reporting claims. Failing to report a claim within the policy’s reporting period could result in a denial of coverage. It is always recommended to refer to the policy document or contact your insurance agent/broker for specific instructions and guidelines on reporting a claim.
Notice of the claim, or potential claim, in a situation when there is an event that is at or near the end of the policy period is highly problematic. While you may not have all the facts or have even initiated an internal investigation to determine the validity of the issues alleged, the clock is ticking. It is then you need to make sure that the reporting requirements, as outlined in the policy, are followed. In some cases, you must report the claim as the Insured, direct to the carrier or an entity designated in the policy. In other cases, Centralized Claims can assist you and handle the reporting.
The key is to get as much information/documentation as you have available to the carrier, with the express understanding that it is your first indication a claim might be outstanding against your organization. Do not wait until you have all the facts. It could be too late.
As an organization, we are always there as your resource for guidance and direction. If the claim does not move forward, you will have protected your interests and no payment will be made. Be safe, not sorry. In many of these types of cases, the cost of investigation and defending far exceeds a case’s true value.
One day can make all the difference between a covered and a denied claim.
For more risk insights and solutions, contact INSURICA today.
This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
