Claims Made vs. Occurrence
Have you ever wondered what the difference is between claims-made and occurrence policies?
The real notable difference is in how the two policies handle your prior acts. Prior acts are incidents or events that occurred in the past, whether its yesterday or two years ago. The key to understanding these two policy forms is in the "trigger" date, i.e., the range of time that will successfully trigger your policy's defense.
An occurrence policy is triggered by a claim that occurs within the policy period. It doesn't matter when the claim is actually reported; the occurrence policy is only concerned with when the event took place. So let's say you receive a formal notice of claim today referencing an incident that occurred in 2002. If you were on an occurrence policy during that time, your 2002 policy would respond to the claim even though technically, it's no longer in force.
A claims-made policy works a little differently. In addition to relying on the date the incident occurred, a claims-made policy has a second component necessary to trigger coverage - when the claim is reported to the insuring company. Generally speaking, the policy in force when the claim is reported is the one that will respond. But claims-made policies also put a limit on how far they'll go back by using a retroactive date. The retroactive date refers to when the claim occurred versus when its reported. For example, if you have a claims made policy with a retroactive date of October 1, 1987, then your claims made policy will cover claims that are reported during the policy period and that occurred on or after October 1, 1987. To establish your retroactive date, the insuring company will want to know how you've handled your prior acts so far. When you first move from an occurrence form to a claims-made policy, your retroactive date will be the same as your effective date - January 1, 2007 for example. But as your policy renews each year, the retroactive date will stay the same even though your effective date continues to advance by one year. In other words, your retroactive date would still be January 1, 2007 three years later when your policy effective date was January 1, 2010. In this instance, your claims-made policy would cover claims that occurred on or after January 1, 2007 and that were reported during your active policy period. As long as you maintain continuous claims-made coverage, your retroactive date will follow you wherever you go - even if you change insurance companies and any acts that occurred prior to that retroactive date would be covered under your previous occurrence policies.
Let's look at a sample policy history:
| Policy 1 | Policy 2 | Policy 3 | Policy 4 | Policy 5 |
| 1/1/99 to 1/1/00 | 1/1/00 to 1/1/01 | 1/1/01 to 1/1/02 | 1/1/02 to 1/1/03 | 1/1/03 to 1/1/04 |
| Occurrence | Occurrence | Claims Made Retro 1/1/01 | Claims Made Retro 1/1/01 | Claims Made Retro 1/1/01 |
The table above shows five years of coverage, the first two being on an
occurrence form and the last three years on claims-made. Let's say that a
claim is presented on 3/14/02 for a wrongful act that occurred 2/14/00. Since
the wrongful act occurred during the policy period of the occurrence form, the
responding policy is policy 2.
Another claim is filed 12/29/03 for a wrongful act that occurred 6/7/01. The
responding policy is policy 5. It was reported during that policy year and the
wrongful act occurred after the retro date of 1/1/01.
What happens when you want to end your claims-made coverage?
There are a number of reasons that a physician might want to end their claims-made policy. Retirement for example, or perhaps they've accepted a new position with a group. In these instances, the physician won't need the policy going forward, but what about those prior acts?
If your new coverage will not be picking up your current claims-made retroactive date, you're going to have a dangerous gap in your coverage unless you do something to protect your prior acts. To do this, insurance companies offer what is called an Extended Reporting Endorsement or TAIL. The tail policy acts as an extension of your original claims-made coverage by giving you additional time to report claims. Under a tail policy, your retroactive date stays in tact and while you won't have coverage for any incidents that occurred after your policy termination date, you will still be able to report claims that occurred on or after your retroactive date and prior to the cancellation of your claims-made policy.
For example, let's say you have a claims-made policy with a retroactive date of October 1, 1987. You purchase a tail policy on July 1, 2006 and then receive notice of a claim on August 1, 2006. If the claim is based on an incident that occurred on or after October 1, 1987 but prior to July 1, 2006, your tail policy would respond. Any claims received for acts or events that occurred after July 1, 2006 would not be covered under the tail policy.
Tail policies differ among carriers so make sure you understand how your tail coverage will work. Questions to ask are how much it will cost, how long your reporting period will last and whether or not the company offers a free tail policy under certain conditions such as death, disability or retirement.