Explaining Claims-Made and Occurrence Policies
Insurance gives us financial protection when misfortune happens. We rear-end someone and our auto insurance helps cover the damages. We get the flu and our health insurance pays part of the bill. One look at TV commercials and it’s obvious there are many auto and health insurance companies competing for our business. It’s when we’re actually in the market for insurance that we become curious about how the competing insurance companies will cover us—how will the insurance respond when we need to file a claim?
In the world of Professional Liability Insurance, how we’re covered depends on the type of policy we purchase. In the case of Professional Liability Insurance, there are two general types of policies offered: claims-made and occurrence policies. The primary difference between the two is how coverage applies when a claim is made.
As a health care professional, it’s your legal and ethical duty to care for your patients in ways that promote healing and wellness—and hopefully there are lots of happy, healthy people who’ve benefitted from your care. But, what if a claim of negligent care or improper conduct is brought against you by a former patient? What if it’s years after the care was given? Will that claim be covered?
The answer is that it depends on the type of policy you were covered by at the time of the incident—whether it was a Claims-made policy or an occurrence policy. Here’s a summary of how coverage works for claims-made and occurrence policies:
Claims-made policies cover claims when they are made within the time period that the policy is in effect. It is common for claims-made policies to also contain a “reported” component, which requires the claim also be reported to the insurer within the policy period.
Another important thing to note about claims-made coverage is how your coverage and any future claims are impacted if you decide to switch companies for your Professional Liability Insurance. Before you switch, you’ll want to do one of two things to ensure you have coverage for claims reported in the future for incidents that occurred during the original claims-made policy period:
- Purchase “tail coverage” on your original claims-made policy. Tail coverage (also called an Extended Reporting Endorsement) extends the period in which incidents that happened during the initial policy period can be reported and covered. Without tail coverage, any claim filed after the claims-made policy expires is not covered.
- Purchase “prior acts coverage” from the insurance carrier of the new insurance policy. Prior acts coverage will afford you coverage by the new insurance company for professional services provided that date back to an assigned “retroactive date.” The retroactive date is usually the date your first Professional Liability policy went into effect.
Both of these options allow you to continue this important coverage uninterrupted and will help ensure you are covered for your past professional services. It’s generally less expensive to purchase prior acts coverage from an insurance carrier, however, not all insurance carriers offer the option. In that case, you’re left to purchase tail coverage on the original policy.
Occurrence policies are a bit easier to understand. Coverage under an occurrence policy is provided for a claim no matter when the incident occurred or when it is reported, as long as you had an occurrence policy in force at the time the incident occurred. One of the benefits of an occurrence policy is that you don’t have to maintain continuous insurance coverage for a claim to be covered (i.e. there’s no need for tail or prior acts endorsements in order for past incidents to be covered)—if you had insurance when the incident happened, it’s covered.
Comparing the Cost
Cost will no doubt be an important deciding factor in choosing your Professional Liability policy. But rather than comparing just the up-front cost, you’ll need to consider which type of policy is the better value: will you need coverage in the future for the care you give today?
Typically, the annual premium for a claims-made policy is much less expensive (as much as 50%) than an occurrence policy. But as described earlier, to ensure continued insurance protection for your professional services after a claims-made policy expires, it’s wise to purchase tail coverage. The additional cost of premiums up-front for an occurrence policy, paid at the start of each new policy year, may end up costing more over time than a claims-made policy with tail coverage added on.
Coverage Today for Yesterday’s Claims
One may assume that occurrence policies provide better coverage based on the fact that past incidents will be covered if reported today (as long as the occurrence policy was in effect at the time of the incident). The important thing to have full understanding of, is that the claim will be covered at the liability limits in-force during the policy period. Just be aware that those limits may not adequately protect you from today’s cost of defending a claim.
On the other hand, if you maintain an uninterrupted claims-made policy, any claims that are reported will be paid based on the limits of your current policy, no matter when the incident happened. As such, a claims-made policy may provide better coverage long-term.
Policies available from Lockton Health are claims-made and reported policies for most professions. For most allied health professionals, there is an overall lower risk of claims occurring long after caring for your patients, so claims-made coverage is adequate in most cases.
Check out more tips for managing your Lockton Health Professional & Medical Liability Insurance.