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When an incident occurs and a claim is reported immediately, theprocess is fairly straightforward. But what if a period of timepasses after an incident? Let's say a business consultant gavea client advice in 2002. The client followed the advice andsuffered economic damages because of it in 2004. But the consultantchanged liability carriers in 2003--so who responds to theclaim?
That depends on whether the coverage was written on aclaims--made or occurrence basis, says Dana J. Coates, president ofUnitedAgencies-United Western Division, a Pasadena, California-basedinsurance agency. A claims-made policy protects against claims orincidents that are reported while the policy is in force,regardless of when they happened. An occurrence policy coversclaims for incidents that occurred during the policy period,regardless of when the claims are reported.
If the consultant has a claims-made policy, the current carrierwill handle it. If he has an occurrence policy, he'll need togo back to the carrier that was covering him during 2002 and hopethat company is still viable and able to defend the claim.
Which form is best for you depends on how likely you are to bethe target of a claim for something that happened in the past.Claims-made coverage "has become the coverage form of choiceon virtually all [professional liability] malpractice exposures andfor all perceived high-risk products," says Coates. Your agentcan help you make the right choice.
Jacquelyn Lynn is a freelance business writer in Orlando,Florida.
