(Updated 3 February 2025)
When it comes to liability insurance, the timing of an event and when a claim is reported can make all the difference. Two common policy types, occurrence and claims made, respond to claims in very different ways, and switching from one to the other can create unintended gaps in cover. In this short article, we unpack these key differences and highlight an important solution to avoid coverage pitfalls.
The losses occurring policy responds for events occurring during the relevant period of insurance. Therefore, if a claim is reported for an event that took place a few years ago, the policy in force at the time will respond even though the insured had or could have changed insurer in the meantime.
The claims made policy responds to claims made during the current period of insurance of the policy regardless of the date of event and subject to any applicable retroactive date.
With a claims made policy, four dates must be satisfied:
- Occurrence date
- Policy effective date
- Retroactive date (must be after)
- Termination date (must be before)
As long as the event giving rise to the claim occurs after the retroactive date and is reported before the termination date, the policy in force when the claim is first made against the insured (not when the event occurs) will respond.
The problem
When a body corporate’s policy moves from a claims made policy wording to an occurrence policy wording, there will quite likely be a huge gap in liability cover. If an event occurs during the claims made policy period but the insured does not become aware of and consequently, cannot report the event to the insurer until after the policy is terminated, there will be no cover provided by either policy.
The requirements of neither of the policies are met because the event occurred before the occurrence policy existed and the claim was only reported after the claims made policy expired; therefore the loss is not covered.
Traditionally, the only way to avoid this gap has been to purchase an Extended Reporting Period (ERP otherwise known as TAIL) endorsement before switching to the occurrence policy. However, very few underwriters are willing to provide this TAIL cover.
The solution
Remove the gap in cover by seeking retro cover.
Some policies specifically cater for this risk i.e. they have an automatic endorsement included to cater for this. CIA’s Prior Acts cover is a good example.
Understanding the distinction between occurrence and claims made policies is crucial for trustees, managing agents, and brokers, particularly when switching a scheme from one policy to another. A poorly managed transition between these policies can leave your scheme exposed to significant financial risk. By taking the above into consideration, you can ensure seamless protection and peace of mind.
Author: Mike Addison
Addsure is a leading sectional title insurance broker. Get fit and proper advice from advisors who understand sectional title.