What is the difference between Claims-Made liability policies and Losses-Occurring policies?

Losses-Occurring

Claims-Made

The injury or damage giving rise to the claim must occur during the Period of Insurance

The event causing the claim must occur after the Retroactive Date but before expiry of the policy

The claim1 can be reported at any time during or after the Period of Insurance

The claim1 must be reported during the period of Insurance2

Disadvantages:

  • The claim may only come many years later when the indemnity limit is inadequate
  • The Insurer might stop trading before the claim arises
  • The client might need to keep their policy records indefinitely
  • A gradually operating cause may span the periods of insurance of several differed insurers (each with a different indemnity limit). A dispute may arise as to which insurer ought to pay the loss.
  • The premiums are generally higher because insurers need to provide for claims that may occur many years into the future
  • There is no cover for losses that occur before the period of insurance.

Disadvantages:

  • Today’s mistakes might only manifest themselves as a liability in many years time. By then the insurance market might not be willing to provide the required type of cover

(The most well know example of this is asbestosis.)

NB:

  1. 1.            The Insured must notify the insurers immediately if they become aware that there may be a legal liability to a third party.
  2. 2.            To enjoy cover under a Claims-Made policy, the Insured must first become aware of these circumstances during the Period of Insurance.

 

Subject: 
Introduction to Liability