What is a claims-made insurance policy?

A claims-made insurance policy is most often used to provide professional liability coverage, such as the coverage needed by lawyers and doctors to protect them from malpractice claims.  But it is also used frequently for other types of liability insurance, such as employment practices liability, directors and officers liability, and products liability.  It is sometimes used for the general liability insurance that all businesses purchase.

The typical claims-made policy provides coverage for injury or damage no matter when it occurred as long as the claim against the insured is presented during the policy period.

Some claims-made policies contain a “retroactive date” that precedes the effective date of the policy and allow coverage for acts that occurred prior to the policy period.  This is called “prior acts coverage.”

Some policies also allow an extended time period for the reporting of claims after the expiration date of the policy.  There could be a “basic extended reporting period” for a short amount of time, usually provided for no additional cost.  There could also be a longer “supplemental extended reporting period” made available for additional premium.

Ask your agent or look at the front page of the policy to determine if your policy is a claims-made policy. If it is, you need to carefully review incidents that might develop into a claim at a later date. There are two potential coverage gaps when using a claims-made policy form:

1. You may be without coverage for a claim filed after the policy expires if it is not replaced with a similar policy that provides prior acts coverage.  Since the claims-made policy responds only to claims that are made during the policy period, there would be no coverage for a claim arising out of an occurrence during the policy period but not reported until after the expiration of the policy or the extended reporting period.
2. The policy will not respond to a claim arising out of an occurrence prior to the effective date or the retroactive date, even if the claim is reported during the policy period.

These coverage gaps can be avoided by careful attention by you and your agent.  Close attention to the retroactive date and the use of extended reporting period provisions will alleviate these problems.