When you have a commercial general liability insurance policy, you get the option to choose between two types of policies—claims made and occurrence.
Let’s understand the difference between both of them –
In case of an occurrence policy, the coverage starts the time an injury takes place during the policy term. While it is essential that the coverage must happen during the policy tenure, a claim can be filed during or after the tenure of the policy.
However, in case of a claims-made policy, the triggering event is a claim which is filed against the policyholder during the tenure of the policy. Here the injury that gives rise to the claim may occur during or before the policy tenure, but the claim must be made when the policy is active.
Occurrence limits get restored every year, and therefore, the claims which are paid for events arising during one policy tenure do not diminish limits which are available to cover claims arise during other years.
In claims-made, the limit is not restored each year in the way it is restored in the occurrence coverage limit.
The primary benefit of occurrence commercial general liability policies over claims-made is that they cover ‘long-tail’ claims, which means, it covers those claims which arise many years after the policy has been expired. As long as the triggering event, like treatment, damage, injury, etc.; takes place during the policy tenure, a claim resulting from it would be covered under the policy. Here, the timing of the claim doesn’t matter.
However, as stated above, claims-made policies give little or no coverage for those claims which are made after the policy ceases to exist. It poses an issue for those business owners who switch to an occurrence policy from a claims-made policy or who stop purchasing the insurance.
Claims-made commercial liability insurance policies are cheaper than occurrence policies.
It is the inflation impact due to which the limit on the occurrence policy can be too low to cover claims which are filed many years after the insurance policy has expired. However, the limit on a claims-made policy is more likely to be sufficient since this insurance policy covers those claims which are filed during the current policy tenure.
Then, claims-made policies may include restrictions or exclusions which are not easy to spot. For instance, claims-made policies may have strict claim reporting mechanism. Further, it is easy to switch insurer if you are covered under an occurrence policy as compared to claims-made commercial liability insurance policies.
Kavita Sharma owns a coffee shop. One day, a customer named, Rahul slipped and fell in Kavita’s café. When the waiter came forward to help, Rahul said he was alright and left the coffee shop. Eight months later, Rahul sued Kavita for bodily injury and sent her a legal notice.
Rahul’s accident happened on October 3, 2015. At the time of the accident, the coffee shop was insured under a commercial general liability insurance policy that ran from 1st January 2015 to 31st December 2015. When the policy expired, Kavita replaced it with another commercial general liability insurance policy that started on 1st January 2016. Kavita received Rahul’s lawsuit on March 14th, 2016. Which policy would be applicable?
If Kavita had purchased occurrence policy, the claim would be covered by that policy which was in effect when the injury happened. Rahul’s injury took place when Kavita’s first policy was in effect, i.e., between1st January 2015 to 31st December 2015; therefore, the first policy would settle the claim accordingly.
However, here the answer would be different if Kavita had purchased claims-made commercial general liability insurance policy. Here the first policy would not be applicable because Kavita received the claim when her first policy got expired. As the claim was filed during the tenure of the second policy, so here the second policy would be applicable.