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Mann Insurance Agency has a blog which is constantly putting up content on the web for our customers to gain knowledge. Knowledge of the industry is one of our core strengths. Please review all of our blogs to see the authority of content that we post here. More... |
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Commercial General Liability Insurance
Comparison of Occurrence Form versus a Claims Made Form You buy general liability insurance (including product liability) which is for protection against claims. So, if you're involved in an incident that results in bodily injury or property damage to a 3rd party, the question becomes - Is That Claim Covered? It depends on whether or not your policy is written on an occurrence or claims made policy form. The simple definitions are that the claim is covered on: The date when the claim occurred: Occurrence The date when the claim was made: Claims Made Your understanding of these forms is critical to making sure you get proper insurance coverage. Remember, claims begin as complaints or controversies. They can take months, and sometimes years, to develop into submitted insurance claims. Let's take a look at occurrence then claims made. Occurrence Form The occurrence coverage form protects against covered lawsuits as long as the policy is in force when the bodily injury or property damage occurs. As long as this condition is met, coverage remains in force. A claim may arise years after the policy has expired. But the occurrence coverage trigger places little or no importance on the date the insured receives notice of the claim. The date the claim is made has no bearing with an occurrence form. For example- You have a business in the home medical equipment industry. You supply wheelchairs, portable oxygen tanks, hospital beds, and other useful medical aids to help patients heal in the comfort of their own home. You have a general liability including products liability policy that expired in 12-31-2008. Since then you've switched agents and carriers.
A claim on a defective wheelchair is brought against the policy on 1-5-09- after the policy expiration date of 12-31-08. However, the wheelchair broke on 10-22-08. You'd be covered on the policy that expired on 12-31-2008 (not your current policy) if the policy was written on an occurrence form. (Note: As a general rule, the occurrence coverage form offers superior protection but it can be significantly more expensive than the Claims Made coverage form.) When the Claim is Made, the Claim Gets Paid On the other hand, the claims made coverage form protects against covered lawsuits only when the following two conditions are met: •1. The policy is in force when the bodily injury or property damage occurs
•2. The policy is still in force when the claim is made.
You can see how that differs from the occurrence form. With a claims made form, the policy has to be in force and the claim has to be made during that time. Hence- when the claim is made, the claim gets paid.
So, in the example above, if the policy was written claims made, the broken wheelchair would not be covered under that policy because the claim was made after the policy expired. However, some adjustments are possible with the claims made form. Take a look at this scenario. Claims Made Form- Going Backward (Retroactive Date) Your business, MRI Inc., services MRI machines and has been for 5 years. In the fifth year you can finally afford to purchase general liability insurance. (Note: A startup business with no general liability insurance is common in the United States.) When you purchase your policy in the 5th year, you can check and see if your claims-made form will allow you to buy prior acts coverage. To get prior acts coverage, you add a retroactive date going back to the date of your first job. Your coverage then begins on that date as opposed to the date you bought the policy. (Note: You'll have to make a "good faith" statement that you and the firm have no knowledge of any mistake, error, controversy, pending or potential claims on the date coverage was purchased.) How about coverage after your policy expires? Claims Made Form- Going Forward (BERP and SERP) What if you get out of the business and don't renew your claims-made policy? All coverage for prior services ceases once a claims-made policy is allowed to expire. But you can purchase BERP or SERP extensions: •· Basic Extended Reporting Period (BERP) is a 60 day reporting period for any claim that comes in after policy expiration. Remember, though, it's for only 60 days after the policy expires. This comes with the policy as NO ADDITIONAL COST. •· A Supplemental Extended Reporting Period (SERP) is the true "TAIL" coverage. The SERP treats any claim that comes in after the business is closed down as if it came in on the last day of the expired policy. Usually a SERP will cost up to 150% of the last years claims made form premium.
There are other fine points about these two aspects of general liability insurance. As always, review your options with your insurance agent to make an informed decision.
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