claims made versus occurrence claims, insurance, liability

What does ‘claims made’ versus ‘occurrence based’ mean in insurance?

There can be a lot of confusing terms, jargon and language when it comes to the fine print of insurance. And none more than claims made and occurrence based claims!

And if you don’t have a good understanding of the difference between the two, it could have a crucial impact on your insurance solution.

About claims made liability

Basically, claims made means that you (the insured) are covered for claims made against you during the CURRENT period of insurance, regardless of the date when the incident happened. There are a number of liability classes that are particularly affected, including professional indemnity, directors’ and officers’, employment practices and management liability, which are written on a claims made basis.

According to ANZIIF, there are two important criteria to observe with this:

  • By reason of the nature of claims made policies, you (the insured) are required to report or notify the insurer of any claim or known circumstance which may lead to a claims, within the current period of insurance.
  • It’s the current insurer that will respond to a claim made against the insured, and not the insurer at the time of the original incident.

About Occurrence based liability

General partnership liability (GPL) is generally written on an occurrence basis. This means that you (the insured) are covered for legal liability to pay compensation to a third party for personal injury or property damage, caused by an occurrence during the current period of insurance, in connection to your business operations or your products/services. The occurrence part means an event or series of events which results in personal injury or property damaged that you neither expected nor intended.

With these types of policies, it’s the original insurer from the time the incident happened that will respond to a claim, regardless of when the claim is actually lodged – it may be many years of elapsed time between the incident and the claim. If an occurrence based claim is lodged today, the current insurer will refer you, the insured, back to your original insurer (the one ‘on risk’ when the incident occurred).

The difficulty with occurrence based policies is that it can sometimes be difficult to identify or track down the insurer at the time of a claim from years before, or they may no longer exist, or the indemnity limit at the time is now inadequate. But on the other hand, with occurrence based policies you never need to purchase run off cover (or continuing insurance protection) which you should do with claims made insurance policies.

Questions about your claims made or occurrence based liability policy?

We’re here to help! Please note that this information above is general in nature – contact us or your insurance broker to get advice about your situation.