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Claims-Made Policy

"Claims-Made" is a term used in insurance to describe a type of policy that provides coverage for incidents that both happen and are reported to the insurer while the policy is active.

What is Claims-Made in Insurance?

In insurance, a “Claims-Made” policy differs significantly from an “Occurrence” policy. While an occurrence policy covers any claim for an event that happened during the period of coverage—no matter when the claim is filed—a Claims-Made policy only covers claims if both the incident and the filing of the claim happen during the coverage period.

Example: Imagine you have a professional liability insurance policy that is active from January 2020 to January 2021. If a mistake is made in March 2020 and you are sued in April 2020, your Claims-Made policy would cover this claim. However, if the same mistake leads to a lawsuit in February 2021, after your policy has ended, this claim would not be covered under your expired Claims-Made policy.

Key Components of Claims-Made Policies 

There are three key components to understanding a Claims-Made insurance policy:

  1. Retroactive Date: This is the date from which the insurer will consider coverage for incidents. Any incident that occurs before this date is not covered, even if the claim is made during the active policy period.
  2. Policy Period: The specific timeframe during which the policy is active. Only claims made within this period are eligible for coverage.
  3. Extended Reporting Period (ERP) or Tail Coverage: This allows policyholders to report claims for incidents that occurred during the policy period but were claimed after the policy has ended. This extension is crucial in maintaining protection against late-coming claims.

Types of Claims-Made Policies

Claims-Made policies can cover various situations depending on the specific type of policy purchased. Here are four common types:

Professional Liability

Often used by professionals like doctors, lawyers, and architects, covering them against claims of malpractice or professional negligence.

Directors and Officers Liability

Covers the management decisions of a company’s board of directors and officers.

Employment Practices Liability

Provides protection for claims related to employment practices, such as wrongful termination, discrimination, or harassment.

Cyber Liability

Offers coverage for claims related to data breaches and other cyber-related liabilities.

Exclusions and Limitations

Claims-Made policies do not cover every type of claim. Common exclusions and limitations include:

  • Claims related to incidents before the retroactive date.
  • Intentional illegal acts or omissions.
  • Claims reported after the policy period without an ERP.
  • Claims from known circumstances that were not disclosed when the policy was purchased.

It’s essential for policyholders to understand these exclusions to avoid surprises when a claim is made.