What is the difference between Claims Made and Occurrences?

This is a topic that seems to generate a lot of confusion, particularly with new agents. It can be best understood in this way:

• Claims Made policies provide coverage only if the claim is reported to the insurance company during the policy period.
• Occurrence policies on the other hand, provide coverage for incidents or occurrences that happen during the policy period, even if the claim is not made until after the policy has expired.

An example of claims made vs occurrences

Claims Made policies only provide coverage for incidents that are reported to the insurance company while the policy is in effect. If a policy lapses, any claims arising from incidents that occurred while the policy was in effect would not be covered.

For example, A physician has a Claims Made policy and provides treatment to a patient in 2022. The following year, In 2023, the patient files a lawsuit against the doctor alleging malpractice. If the doctor’s Claims Made policy was in effect in 2022 but has lapsed in 2023, the doctor would not be covered under the policy and would have to pay for their own defense and any damages.

On the other hand,  if the physician had an Occurrence policy when treatment was provided to the patient in 2022., when the patient filed a lawsuit against the doctor alleging malpractice in 2023,  even if the physician’s Occurrence policy had lapsed, they would still be covered for the incident that occurred in 2022 and the insurance company would provide coverage for their defense and any damages.

Moving from an Occurrences to a Claims Made policy

There could be instances where the carrier will no longer provide an Occurring policy or for one reason or another, it may be necessary to move the client to a Claims Made policy. 

In that instance, you should attempt to negotiate a retroactive date for the new Claims Made policy.

Why? 

Because the purpose of a retroactive date is to provide coverage for incidents that occurred before the start of the Claims Made policy, ensuring there are no gaps in coverage.

When switching from an Occurrence policy to a Claims Made policy, it’s possible that incidents that occurred while the Occurrence policy was in effect may not be covered under the Claims Made policy if a retroactive date is not established.

In this scenario, having a retroactive date helps to ensure that any incidents that occurred while the Occurrence policy was in effect will be covered under the Claims Made policy, even if the incidents are reported after the Claims Made policy has started.

In short, while a retroactive date is not essential when shifting from an Occurrence policy to a Claims Made policy, it can provide an added layer of protection against potential gaps in coverage.

Are occurrences policies also suitable for cyber insurance?

While Occurrence policies are usually best for Medical Malpractice Insurance, they are also often considered better than Claims Made policies when it comes to cyber insurance for the following reasons:

1. Timing: Cyber incidents can take time to discover and may not be reported until well after they have occurred. With an Occurrence policy, coverage is provided for incidents that occur during the policy period, regardless of when they are reported.
2. Claims reporting requirement: Claims Made policies require that claims be reported to the insurance company during the policy period, which may not be possible if the incident is not discovered until after the policy has lapsed. With an Occurrence policy, there is no such reporting requirement, and coverage is provided as long as the incident occurred during the policy period.
3. Continuity of coverage: With Claims Made policies, if the policy lapses or is not renewed, any claims arising from incidents that occurred while the policy was in effect will not be covered. With an Occurrence policy, coverage is provided for incidents that occurred during the policy period, regardless of whether the policy has lapsed or been renewed.
4. Peace of mind: Occurrence policies provide policyholders with peace of mind that they will be covered for incidents that occur during the policy period, regardless of when they are reported or whether the policy has lapsed.

In short, Occurrence policies are often considered better than Claims Made policies when it comes to cyber insurance because they provide coverage for incidents that occur during the policy period, regardless of when they are reported, and provide continuity of coverage, even if the policy has lapsed.

Negotiating a long tail on insurance policies for continued coverage

Negotiating a long tail on insurance policies is important when your client is exiting a medical practice or managing medical facilities for a few reasons:

1. Coverage for future claims: A long tail provides coverage for incidents that may occur after the policy period has ended, but are related to treatment provided while the policy was in effect. This is important because medical malpractice claims can sometimes take several years to arise, and a long tail ensures that the policyholder will be covered if a claim is made after the policy has ended.
2. Protection against gaps in coverage: A long tail helps to ensure there are no gaps in coverage when switching from one policy to another, or when leaving a medical practice or management of medical facilities.
3. Peace of mind: Having a long tail in place provides peace of mind for policyholders that they will be protected against future claims, even if the policy has ended.

Summary

Regardless of what type of coverage that is negotiated for clients, it is important to have safeguards against gaps in coverage. While an Occurrences policy is often preferable, you can also negotiate a Claims Made policy with a retroactive date and a long tail to ensure there are no gaps in coverage.