Understanding Claims Made Coverage
Most Errors and Omissions Insurance policies are written on a Claims Made basis and therefore are unique and different than some other types of insurance coverages which may be issued on an Occurrence Basis.
Every Claims Made policy is different and you should read your policy to determine how this applies to you or your company. In general the following applies to Claims Made policies:
- When must the claim be reported:
- The claim must first be made against the Insured (any insured under the policy) during the policy period, or any extended reporting period purchased or automatically offered by the carrier. A claim typically refers to a written demand, but may also include a written or verbal threats of a claim. In most cases you are required to report incidents which may develop into a claim even though you have not yet received notification.
- When the Professional Services must be provided:
- The Professional Services provided which are the basis of the allegation, must have been performed subsequent to the retroactive/prior acts date listed in the policy and prior to the expiration date of the policy.
- Insured’s responsibility to report claims:
- The insured has a responsibility to notify the carrier as soon as possible of any claim, or threat of claim or of any incident they reasonably believe could result in a claim. Failure of an insured to timely report the above to the carrier will most likely result in a denial of a claim.
- The claim must be reported to the company as during the policy term or any extended reporting period purchased upon termination of the policy.
Your expiring policy will have certain provisions that require you to report matters which have not yet developed into a claim, but which might give rise to a claim. Such matters include:
- Verbal threat of claims or legal action.
- Written threats. (including emails or similar correspondence)
- Knowledge of a wongful act.
When changing from one claims made policy to another, it is important to inquire of the management, staff and any others to be insured under the proposed policy, of any matters that they may be aware of that should be reported.
This is crucial since knowledge of an employee; agent or independent contractor (any insured) is imputed upon the entire company for purposes of representations in the application. Failure to report incidents that might give rise to a claim can lead to a denial of your coverage, in a situation which would otherwise be covered.
If after inquiry of management and staff (all those insured under your policy), you may need to report a matter to your current carrier prior to moving or renewing your coverage. Please refer to your current policy for the specific reporting requirements. In all circumstances you should reports claims or incidences prior to the expiration of your current policy. Any incident that you believe might or could give rise to a claim must be reported prior to policy expiration date.
Extended Reporting Provisions
Some polices may automatically provide an additional 30 or 60 days to report a claim beyond the expiration of your policy without an additional premium, if you do not purchase coverage elsewhere. Most policies however, do not have that automatic provision and claims reported after the policy expiration may not be covered.
For a premium, most policies will allow the insured to purchase an additional amount of time to report a claim after the expiration of the policy. The cost is typically a percentage of the expiring premium. A standard amount of time purchased in an Extended Reporting Period Endorsement is 12 months and the premium is usually 100% of the expiring premium. Many carriers will also offer Extended Reporting Period Endorsements of 12 to 60 months of additional time to report a claim at a predetermined rate. Please check your policy.
An Extended Reporting Period Endorsement does not extend your policy period. It simply gives you an additional time to report claims for wrongful acts that occurred subsequent to the retro active date listed in your policy and prior to your policy’s expiration date.
NO CLAIMS FOR WRONGFUL ACTS WHICH ARE REPORTED AFTER POLICY EXPIRATION WILL BE COVERED, UNLESS AN EXTENDED REPORTING ENDORSEMENT IS PURCHASED OR NEW COVERAGE IS OBTAINED WHICH RETRO ACTIVELY INCLUDES THE PRIOR ACTS PERIOD.
Please note that this disclosure sheet is only intended to discuss those issues most commonly found in a claims made policy. Every policy has different provisions. We strongly suggest that you read the entire policy form of any proposed coverage. Nothing contained in this document will alter, amend or modify any coverage in any policy form. Please read your policy carefully and speak to a qualified insurance professional if you have any questions.