Claims Made vs Claims Occurring Liability Cover: What Business Owners Need to Know
As a business owner, it’s important to understand the difference between ‘Claims Made’ and ‘Claims Occurring’ liability insurance policies, especially if you or your business provides professional advice or services.
Both types of insurance policies cover your legal liability to others for causing some type of injury, property damage or financial loss and will pay your legal defence costs and any court-awarded damages.
Claims Made insurance policies usually apply to professionals and relate to professional advice or services.
Occurrence policy wordings usually apply to other industries where the risk is personal injury or property damage.
Knowing the difference between Claims Made and Claims Occurring is essential, so you’re not left with a gap in cover and have to pay expensive legal bills and potentially large damages amounts awarded by a court.
What does Claims Made Liability cover mean?
A Claims Made insurance policy provides cover only if both the following occur during the policy period:
- you become aware of an incident or are notified of a claim or a lawsuit; and
- you notify your insurer within the current policy period.
Claim example
A software engineer has Professional Indemnity insurance effective from 1 January 2023 to 31 December 2023. They designed a program for a client in May 2023. The client puts the program into operation in Sept 2023, and it failed to work. The business has lost customers, had staff working overtime and immediately tells the software company that they expect them to fix the software immediately and reimburse them for lost sales and extra costs.
The software company notified their Professional Indemnity (PI) insurer a few weeks later in October after checking to see if their software was the possible cause.
The claim is then covered under the 1 January 2023 to 31 December 2023 Claims Made policy as both the demand for reimbursement of costs and notification to their insurer was received during 2023.
It’s also important to have retroactive cover in place. This is an optional extension that provides cover for events that happened, say, in 2022. However, the demand for compensation or legal action is sent in 2024 after the 2023 policy cover has lapsed.
‘Claims made’ works this way because professional errors can be discovered many months or even years after the mistake was made.
What is Occurrence Liability cover?
These policies provide automatic cover at the time the incident or accident occurrence occurs. So, you may not know of the injury or damage until weeks, months or even years later, and there is no condition that you notify the claim in the same policy period as the incident/ accident.
For example, a person trips in the car park of the local supermarket and injures their back and cannot work for months. The supermarket insurer covers the supermarket, even though the claim or legal action is not known about for years after the incident.
Speak to a professional insurance adviser
Since no two businesses are alike, speak to your team today. We can review your risks and needs and provide advice and recommendations to suit you and your business, including the right type of insurance cover.