That's the theoretical side. In practice these two type of liability coverage can, and do, get very complicated.

Because occurrence policies leave the insurance company liable to pay a claim years into the future, it's difficult to price. To protect themselves, the underwriters typically charge a higher premium for an occurrence vs. a claims-made policy. One might think that the insurance companies would abandon occurrence forms entirely, but that is not the case. Today, liability is written under both types of coverage.


Occurrence forms are typically used today for liabilities where the chance of a claim are low, and the limits are low, factors which help keep the price down. Claims-made forms are used for liabilities which are more likely to occur, and have higher financial repercussions. Because claims-made insurance does not expose the underwriter to claims beyond the term of the policy, the cost can be more accurately determined.

But wait, there's more...

If you get a claims-made liability policy and renew that policy annually with the same company, however, it starts to act like an occurrence policy. The date the policy goes into effect the first year becomes your "retroactive date" - which is simply the starting date of your coverage. In the second, third, and subsequent years, that date stays the same. So while you're paying insurance on an annual basis, your coverage becomes multi-year.

The real complications arise when you switch carriers, or retire. If you switch - let's say to get a lower premium - you get a new retroactive date (start date), and the new policy won't cover claims from before that date. However, your new insurance company, for a hefty premium, may write a "priors act" policy. This coverage has a retroactive date that goes back several years, depending on the terms negotiated. But we aware, your new insurance company is not obligated to offer this coverage.

If you decide to retire and have a claims-made policy, your liability protection ceases. However, there is a remedy for this, too. It's called a "tail" policy, though perhaps it should be called a "forward-looking" policy, because it gives your claims-made coverage addition life for several years into the future, should you get sued.

One common problem develops when you get liability coverage after having been in business for several years. Neither take policy will cover claims that may arise from that time period - not even an occurrence form.

Talk to your agent

We've just looked at the tip of the iceberg from a lay person's perspective regarding business liability insurance.

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