Understanding the difference between ‘Claims Made’ and ‘Claims Occurring’ policies is crucial as it can significantly impact the cover you have and what happens when you need to make a claim. Here, we explain how each policy type functions and their key differences.
Claims Made Policies
A ‘Claims Made’ policy provides cover for claims made (reported) during the policy period(typically 12-months), regardless of when the incident actually causing the claim occurred.
Typically, Professional Indemnity and Directors & Officers Liability policies are written on this basis. However, a number of insurers are now providing Abuse and/or Medical Malpractice cover for both domiciliary care and care home providers on a ‘claims made’ wording as well. This means all your work is covered as far back as the start date of the policy or the retroactive date if your policy has one. For a more detailed explanation of retroactive dates, read our blog – What is a retroactive date?
Depending on your retroactive date, this could mean your current ‘Claims Made’ policy could cover you for claims made during the policy period, which arise out of work you have done over several previous years.
It’s important to be aware that a ‘claims made’ policy can sometimes pay out in relation to claims made after the end of the policy period; this could be the case if your insurer has accepted a valid notification of circumstances during the lifetime of the policy. This is a really important point to bear in mind, particularly if you are considering changing insurers.
How does a Claims Made policy work?
If ABC Architects designed and built a stadium in 2020 and a roof leak discovered in 2022 led to a claim in 2023, the 2023 insurer looking after the stadium at that time would handle the claim; this is despite the build error that led to the claim occurring in 2020.
Given that this type of policy provides cover only for when the claim is made, this can pose the question of what happens should you cease trading or retire? This is where ‘run-off cover’ steps in.
What is run-off cover?
Run-off cover is there to provide cover for claims that may occur later down the line, relating to your past work. This can be invaluable cover when you consider whether you could take care of the legal costs associated with defending yourself against a claim that arises sometime after you finish working or trading. Run-off over usually lasts for around 6 years but it is important you understand exactly what your specific run-off cover provides protection for, and how long it will operate for as policies do vary. For a more detailed explanation, you can read our blog How does run-off cover actually work?
Notifying insurers of prior circumstances
Another complicating factor is when it comes to circumstances that could result in a claim occurring within the policy period, but that are not formally reported/made until later. As such, clients must disclose any potential claims or incidents that they believe could lead to a claim later down the line during the renewal process.
This is usually picked up through standard questions asked by insurers or your broker at renewal. It can lead to your new policy excluding cover for these circumstances, seemingly leaving you, the policyholder, unprotected. To address this, some policy wordings will accept any claim arising from a notified circumstance during the policy period, as if the eventual claim had been made within that period.
The main thing to remember here is that you must report any such circumstances (that could later give rise to a claim) promptly to your broker and/or insurer, to avoid cover being declined later due to you not having notified those circumstances.
Claims Occurring Policies
A ‘Claims Occurring’ policy covers claims for incidents happening (occurring) during the policy period, regardless of when the claim is actually made. For example, if Simon’s house burns down on 19th September 2020, but he reports it on 4th October 2020 following a renewal which occurred in between those two dates, the previous policy would respond to the claim because the loss occurred within that prior period.
The main advantage of Claims Occurring policies is long-term protection, covering incidents during the policy period even if the claim is made years later. However, this can complicate long-term record-keeping and claims management, especially if a policyholder moves insurers/brokers.
Choosing the right policy for you and your Business
The policy that is most suitable for you will be determined by a number of factors but, generally, businesses needing continuous, up-to-date cover without gaps are going to be better suited to a Claims Made policy wording. In contrast, Claims Occurring policies are going to be more suitable for those seeking long-term protection for incidents that may not manifest as claims until a lot later and, as such, could provide a greater level of peace of mind for some businesses.
Understanding Claims Made and Claims Occurring policies is vital for effective risk management and understanding exactly how you are covered. Each type has its advantages and disadvantages, and the choice depends on your needs and circumstances.
How we can help
As a broker, it is our role to explain the differences between these policies and support you in making an informed decision that gives you peace of mind around your protection. If you’d like guidance or to understand more about the differences between these types of policies, and which might be most appropriate for you, please do not hesitate to contact us; we are here to help you manage your liability risks with confidence.
Contact the team on 01653 609151 or by emailing commercial@mcclarroninsurance.com.
