Claims Made Insurance Policies
When it comes to higher hazard insurance in both Commercial General Liability and Professional Errors & Omissions liability, the Insurance Companies have learned their lessons. From both the costs of General Liability defense of tobacco companies and asbestos companies, the “long tail” of exposure has broken and bankrupted major corporations. It has also seriously depleted insurance companies’ coffers and led to decades of expensive and predatory litigation. This was the legacy of the “occurrence” form of coverage. Whatever happened during the policy and became apparent, even many decades afterwards, was covered by those policies.
The result of that compound coverage exposure? “Claims Made” coverage forms. These polices do not offer occurrence coverage without limit. They offer coverage only during the policy term and up to 30 days past expiry date. You either lose coverage for that policy year if you do not renew, or you have to buy an extended reporting provision for your policy.
Most extended policy reporting provisions will only provide you with one, two or three years of “tail” coverage at 100%, 250% or 350% of the annual premium. That figure will vary by insurance company but is ballpark accurate. The “extended reporting provision” does not continue coverage, or increase coverage with “stacked” annual limits. The reporting provision simply extends the period of time that a claim may be reported under the original policies coverage limit, terms and conditions.
That claims made policy may provide coverage for only that single policy year, or, in the case of a policy that was in force for multiple years may extend back to the beginning of the original policy which would be defined by its “retroactive date”. The “retroactive date” is typically the date on which the first professional policy was issued, and is normally referenced directly on the declarations pages of a policy. Sometimes referred to as a “prior acts date” the retroactive date limits any claims being reported prior to that stated date. Even if the claim is reported during a current policy period if the acts which lead to the allegation of negligence or error & omissions occurred prior that date it is fully excluded from all coverage or defense under the policy.
Just to make things a little more complicated, Insurance Companies also refer to a term known as the “knowledge date”. This phrase can eliminate coverage under a professional liability policy for any claim or situation that could lead to a claim under a new policy even if the claim is within a current period and the retroactive date. The purpose of “knowledge date” wordings is to prevent a new insurance company under your existing program from inheriting a claim that should have been reported to the prior carrier on your program. That would also have affected your eligibility for the new coverage that you may have secured.
If you had knowledge of a pending claim or incident prior to switching to a new carrier this could nullify your coverage. This is why caution needs to exercised when switching carriers to make sure that there is nothing that needs to be addressed under the existing coverage.
While this may seem confusing, we can walk you through this and all the other issues of professional liability insurance.
