While occurrence coverage is based on when the act occurred, claims-made coverage is based on when the act is reported (when the claim is actually made).
Claims-made policies provide coverage for claims, which are reported to the insurer while the policy is in force. The policy covers professional services rendered on or after either (1) the policy inception date or (2) an earlier retroactive date. The retroactive date is a date mutually agreed upon by the company and the insured to begin the coverage period. Thus, a claims-made policy may provide coverage for professional service rendered from a retroactive date through cancellation or expiration of the current policy, so long as the claim is reported to the insurer during a policy period.
Claims-made coverage is less expensive than occurrence during the first few years. The premium then increases to compensate for the increased risk of receiving claims from previous years. Premium increases, often called “steps”, reflect the insured’s increased exposure to this liability. Steps usually cease after five years have transpired from the retroactive date.
When a claims-made policy is cancelled by the insured or non-renewed by the carrier, an Extended Reporting Endorsement (commonly called “tail coverage”) may be required. There is an additional cost associated with this endorsement; however, it will provide protection for claims reported after the claims-made policy’s termination date.
Liability protection against legal claims arising from your business premises and operations. For example, a patient/customer arrives at your business location and slips and falls.
For persons who have had Claims-made policies, The Extended Reporting Endorsement (tail coverage) provides protection for claims filed in the future. By contrast, some insurers offer tail coverage only for claims made during a short period of time after the termination of the policy, after which the insurer has no responsibility to provide tail coverage.
Extended Reporting Endorsements may require an additional premium, some times two or three times the current year’s premium. Tail coverage may be given at death, total disability, or at retirement after certain qualifications are met. These qualifications vary between insurers.
Basically, occurrence coverage provides protection for professional services rendered regardless of when the patient files a claim. Even after you stop practicing your occurrence policy will still provide you and your estate with coverage for the professional services you provided during the policy term.
Premiums for each policy period are set when the policy is purchased. There are no additional costs.
At each renewal, most insureds may choose an amount of coverage for the new policy period and are protected up to that limit, regardless of when the claim is filed*.
Fewer insurers offer occurrence coverage, and therefore it may not be available in all areas of the country. Insurance companies must plan for long-term liability exposure when issuing occurrence policies. Thus, the cost of occurrence coverage is generally higher than claims-made.
*Policy payments decrease the limits available for future claims.
Liability protection against legal claims arising from errors and/or omissions in conjunction with a professional occupation and professional services rendered. For example, a patient/customer alleges the treatment/services you provided was incorrect or caused a negative outcome.
If you are leaving another insurer, prior acts coverage may need to be purchased. At the time a new policy is written obtaining prior acts for the previous policy periods may eliminate the need to purchase tail coverage from your prior insurer. While this policy is in force, prior acts coverage protects you against new claims that arise from incidents occurring after our agreed retroactive date.
Prior acts coverage is offered on an individual basis and is not offered in all areas of the country.