What is the difference between ‘occurrence’ and ‘claims-made’ liability policies?

Occurrence policies and claims-made policies represent two different approaches to liability coverage, and understanding the distinction between them is crucial for effective risk management.

Occurrence policies are designed to cover incidents that happen during the policy period, regardless of when the claim is filed. This means that if a situation occurs while the policy is active, the insured is protected even if the claim is made years later, as long as the event occurred within the coverage period. This can provide long-term protection for insured parties, as they do not have to worry about the timing of claims as long as they were covered at the time of the incident.

In contrast, claims-made policies require that claims be reported during the policy period for coverage to apply. This means that if an event occurs while the policy is active but the claim is made after the policy has expired, there is no coverage. Claims-made policies often require additional considerations, such as tail coverage, if a business chooses to switch policies or plans to continue coverage after the policy ends.

This fundamental difference in what is covered and when claims must be made is vital for businesses when assessing their liability risks and deciding on their insurance strategy.