Claims made is one of the two types of liability forms. The other form is occurrence. You will normally see occurrence forms for business commercial general liability (CGL). There are some very important differences between the two types of forms.
Director & Officer, Employment Practices Liability or Management Liability and Error & Omission or Professional Liability are written on the claims made form.
The claims made liability form has a requirement that for a claim to be accepted it must have occurred and been reported within the policy period. There are a couple of exceptions to this rule.
The retroactive date on the policy may provide coverage for claims that have occurred before the inception date of the policy and for claims that have occurred after the retroactive date but are not known at this time. Not all insurance companies will handle this clause in the same way so it is important that you know your specific situation.
The other situation is the extended reporting period. This applies when the policy has been cancelled or has expired. If you, the insured, has provided a written request then the period of reporting a claim can be extended. The circumstances are specific and this is for a claim that occurred during the policy period but was not reported until after the end of the policy.
Both of these exceptions need to be discussed with your agent or broker to be sure that you fully understand your options. Even a one day gap in coverage can make a tremendous difference to your claims ability.
An example of a situation is when you receive notice that you are being sued. The incident is something that occurred three or four years ago. You are into a new term with your current insurance. A claims made and reported form policy is triggered by the date that you first became aware of a potential claim and notified your insurance company. This is where the retroactive date becomes very important and your not having even a one day gap in the coverage.
It would be wise to report complaints, disputes, incidents and potential claims issues as they occur to your insurer as a future claim could be denied if you failed to do so.
A claims made and reported policy is triggered by four conditions.
- The insured has to become aware/receive first notice of a potential claim or claim situation during the policy period.
- This claim or potential claim has to be reported to the insurer during the same policy period.
- This error, omission or negligent act that has created the claim must occur after a "retroactive" date or "prior acts" date that is shown on the policy declarations.
- You, as the insured must make a statement of "good faith" that you and your company had no knowledge of the error, controversy or mistake on the day that you purchased your insurance policy.
Be very clear of the rules with your claims made policy. Not all forms are written the same way and you need to know the differences available to you.