Claims-Made Insurance v Occurrence Insurance Policy Forms

The majority of people think all insurance works like your homeowners, auto, business owners and workers compensation insurance policies which are written on an occurrence policy form.  With these occurrence policies the insurer on the risk at the time the covered act occurred is responsible paying the claim.  But Attorney Malpractice Insurance and Accountant Malpractice Insurance (along with other liability and professional liability Insurance) are written on a claims-made policy form.  The 1^st time insured of a claims-made professional liability insurance policy can be very confused and/or frustrated as the why no occurrence policy form for attorney and accountant malpractice Insurance.

Occurrence form problems with professional liability insurance:

With an occurrence attorney or accountant malpractice policy if a covered error or act occurred you would report the claim to the insurer that was on the risk at the time the act or error occurred. Seems simple but unfortunately in the real world it can be a very complex answer.  If the covered act spanned many years, over many different policy periods, with different insurers, different policy forms, which malpractice insurer is responsible and under with policy form?   Are all insurers responsible and if so with different policies how would you settle the claim?  Have any laws changed?

Depending how you answer these questions and under the theory utilized, you end up with very dramatically different answers for coverage, what policy forms, limits and which insurers are involved.  This uncertainty under an occurrence based policy form is not acceptable to insureds or insurers. In the 80s courts ruled that general liability policies did not have an exclusion for pollution. This lead to insurers paying claims many years later after the policies had expired for a risk that premium was not charged for.  To get a reasonably priced insurance policy, insurers want predictability.

Claims-Made coverage form under a professional liability Insurance policy.

The claims-made policy form came into existence to address the above issues. With claims-made coverage three questions determine coverage:

1.       Is Claims-Made Malpractice coverage currently inforce or is there an inforce Extended Reporting Period Endorsement (ERP)?

2.       Did the covered act or error occur after the retroactive/prior acts date on the inforce policy?

3.       When was the claim made?

Determining insurer responsibility for the claim and under which policy form is straight forward. The insurer on the risk at the time the claim is made is responsible for the claim. The current inforce policy form is used to settle the claim.

To determine coverage the insurer looks at if  there is claims-made malpractice coverage inforce and if the act was alleged to have occurred after the prior acts date on the policy.

Without active claims-made inforce at the time the claim is made there is no coverage. The insured and insurer now know what insurer and what policy form will be used to settle the claims matter.

This makes the Professional Liability Insurance Coverage predictable to the insured and the insurer at claims time.

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