Liability insurance policies come in two main types: claims-made and occurrence-based coverage. Both provide coverage for different periods and under different conditions.
Claims-made policies cover claims made against the insured during the policy period, regardless of when the incident occurred. This means that the policy will only cover claims made while the policy is active, irrespective of when the incident took place. Such policies usually have a retroactive date that specifies the earliest date when a claim can be made for an incident.
On the other hand, occurrence-based policies cover incidents that occur during the policy period, regardless of when the claim is made. This implies that the policy will cover claims arising from incidents that happened while the policy was active, even if the claim is made years later. Occurrence-based policies do not have a retroactive date, as coverage is determined by when the incident occurred.
The key difference between claims-made and occurrence-based policies is how they determine when coverage applies. Claims-made policies cover claims made during the policy period, while occurrence-based policies cover incidents that occur during the policy period, regardless of when the claim is made.
It’s important to note that claims-made policies usually have lower premiums than occurrence-based policies, as they provide coverage for a shorter period of time. However, claims-made policies may require the purchase of extended reporting period (ERP) coverage or tail coverage to cover claims made after the policy has expired or been cancelled. Occurrence-based policies do not require these additional coverages.