Occurrence vs. Claims-made Form
Occurrence vs. Claims-made Form
Most insurance policies for law firms consist of two coverage forms that determine how the policy will respond to a claim: occurrence form and claims-made form. We want to spend the next two posts explaining these two forms and how they can affect your law firm in the event of a claim.
Occurrence form is the most common type of coverage form for commercial insurance. Aside from professional and executive liability policies, occurrence is the prevailing coverage on almost every policy.
The term “occurrence” relates to the moment the claim/injury happens. Then, once the date of “occurrence” is established, the policyholder knows which policy (or policies) will respond to the incident. The policy in force at the time of the incident will be the one to defend the policyholder and possibly pay the damages resulting from the claim.
Unfortunately, as simple as the concept sounds, several different legal theories are used to identify when the claim occurs. Every state is different, and any one of the following precedents could be used to determine the occurrence date:
1. Injury-in-Fact: Some states consider that the date of ANY actual bodily injury or property damage is the date of occurrence regardless of the date of manifestation. (For example, the day the nail was driven into the electrical wire.)
2. Manifestation Theory: Most states consider the date the injury manifests itself or becomes evident as the occurrence. (i.e., the day the fire starts because of the nail driven into it. )
3. Exposure or Continuous Trigger Theory: Known by two different names, this is when the courts consider dates of exposure as the dates of occurrence. This usually means there will be multiple occurrence dates and multiple policies involved in the litigation and settlement of the claim. These types of claims rarely, if ever, affect law firms, and this primarily applies to claims for pollution or other incidents with a potential for a long exposure period.
For law firms, any one of the triggers could above apply depending upon your policy and the type of claim. However, as most law firms’ claims fall under general liability and business auto policies, it’s easy to determine which policy will respond.
Claims-made Form Differences
Unlike an occurrence-based policy, where only the date of occurrence must be determined (or occurrences – based on the legal theory applied), three dates must be known and decided to trigger coverage in a “claims-made” form. These important dates are:
1. The Date of Occurrence;
2. The Retroactive Date (found inside the policy); and
3. The Date the “Claim” is Made.
The date of occurrence was discussed in our last post, and the date the claim is made might be considered self-evident. However, the term “retroactive date” necessitates further explanation.
A retroactive date is a limiting provision in the “claims made” policy. If an injury or damage occurs BEFORE this date – the policy will not respond to the loss. If covered injury or damage occurs AFTER the retroactive date, the policy in effect when the claim is made will respond to defend and pay the claim.
For example, your employment practices liability policy has January 1, 2004, retroactive date, and the injury is determined to have occurred on November 1, 2003. The claim was then reported on February 1, 2004. In this example, the policy in effect on February 1, 2004, will NOT pay for or defend the injury because the occurrence/injury took place before the retroactive date. Even worse, the prior claims-made policy will probably not pay the loss because the claim was not made during the policy period.
Continuing the above-simplified example, if the retroactive date were January 1, 2003, the policy on February 1, 2004 (when the claim is made) would respond in defense or payment of the injury.
These examples highlight the importance of working with an insurance agency that understands claims-made policies and how they can affect you and your law firm.
If you have any additional questions, please don’t hesitate to contact us.