What the difference between general liability insurance claims made vs occurrence policies? There are important differences that could cost a business thousands of dollars depending on when the claim occurred, and when it was reported.
General Liability Insurance Claims-Made vs Occurrence
Commercial insurers usually offer two policy types for general liability insurance, including claims-made and occurrence. Learning the differences between the two can help you choose one that is most appropriate for your business needs.
An occurrence policy covers claims resulting from an injury that occurs during the policy term. General liability insurance claims made vs occurrence coverage depends on the timing of the event.
A claims-made policy covers claims that are made during the policy period and coverage depends on the timing of the claim.
The Coverage Trigger
When you have an occurrence policy, the coverage is initiated by injuries that take place during your policy period. The damage has to occur during the term, but the claim can be filed after or during the policy period.
With the claims-made policy, the triggering event can be any claim made against you during your policy period. The injury that caused the claim can occur during or before the policy was initiated, but the claim has to be made when the policy is in effect.
General liability insurance claims made vs occurrence. For example, you own a coffee shop, and a customer slips and falls. He claims he's okay, but about nine months later, you are served with a lawsuit for bodily injury. The accident itself occurred in 2016, and you had a general liability insurance policy that ran from the beginning of 2016 to the beginning of 2017.
You then replaced it with a new, similar policy when yours ran out. You receive the lawsuit in mid-2017, so you wonder which policy applies. If you used an occurrence policy, the claim is covered by the policy in effect when the customer's injury happened, which would be the first policy. However, if it were a claims-made policy, the second policy would apply because the lawsuit was filed during the second-policy term.
Coverage For Occurrence-Based Claims
In most cases, general liability insurance policies fall in the occurrence variety. They are designed to cover suits or claims that seek damages for property damages and bodily injury that is caused by something that happened or for an advertising injury caused by offense. Therefore, the suit is only covered if it caused damage to property or person, or because of a personal or advertising injury happened. Claims from others can still be brought even after the policy expires.
General liability isn't the only coverage written in occurrence forms. You can also find umbrella, auto, and professional liability coverage, as well. In some cases, you can also find medical malpractice and liquor liability, depending on your industry.
One benefit of choosing such insurance is that they cover claims that may occur many years after the policy expires so long as the damage or injury took place when the policy was current. Therefore, the timing of the claim doesn't necessarily matter.
Coverage For Claims-Made Policies
With claims-made options, the policy is designed to cover a claim made against you during the time the policy is in place. Therefore, the injury that causes the claim has to take place during or even before the policy period.
These policies rarely provide coverage for claims made after it expires, which presents a problem to those who switch from a claims-made to an occurrence policy or who stop coverage altogether.
However, there is an ERP (extended reporting period) in most claims-made policies that can cover claims taking place before the policy period. However, no rule or feature will include a claim that takes place after the policy expires and an ERP can be very expensive, as well.
Likewise, a claims-made policy may limit coverage to only those that arise from an injury that takes place after a particular period or date, called a retroactive date. If a claim is filed before that retroactive date, it won't be covered.
General Liability Insurance Claims-Made vs Occurrence - The Bottom Line
We hope this article on general liability insurance claims made vs occurrence has been informative. When choosing between both general liability insurance options, there are a few things to consider. The cost for a claims-made policy can be cheaper than an occurrence policy. Likewise, the limit on your occurrence policy could be too low to cover any claims filed years after your policy expires. Limits on claims-made policies may be more adequate since the policy only covers claims during a particular term, such as one year.
The pitfall is that claims-made policies usually have more exclusions or restrictions, which may be hard for you to spot when reading through all the fine print. Similarly, a claims-made policy may be harder to come by as many insurers prefer to use occurrence policies.